On January 19, 2010, the DOJ announced (here) a new type of FCPA enforcement action.
While not the first use of undercover techniques in an FCPA enforcement action (see here), the new type of case was certainly the largest and most dramatic use of pro-active, undercover investigative techniques in the FCPA's history.
Twenty-two executives and employees of companies in the military and law enforcement products industry were criminally indicted "for engaging in schemes to bribe foreign government officials to obtain and retain business." However, there was no real foreign official - just FBI agents posing as representatives of a Gabon foreign official - and the case was manufactured by the government with the assistance of Richard Bistrong (an individual who previously pleaded guilty to separate FCPA violations - see here).
In announcing the indictments, Assistant Attorney General Lanny Breuer called the action a "turning point."
The cases were assigned to Judge Richard Leon (U.S. District Court for the District of Columbia). Given the number of defendants indicted, the cases were segregated into smaller units for trial.
The first trial, which started in mid-May, involved Andrew Bigelow, Pankesh Patel, John Benson Weir, and Lee Allen Tolleson. As highlighted in this prior post, at the close of the DOJ's case, Judge Leon dismissed a substantive FCPA count as to Patel, a substantive FCPA count as to Tolleson, and dismissed a money laundering count as to all defendants.
Yesterday, Judge Leon declared a mistrial as to all remaining counts of the DOJ's "turning point" prosecution. For additional coverage see here from the FCPA Blog, here from Main Justice, here from Reuters, here from Law360, and here from the Wall Street Journal Corruption Currents.
Scott Fredericksen, a former DOJ prosecutor and current FCPA practitioner at Foley & Lardner (see here) offered the following analysis.
"A mistrial in the Africa Sting FCPA case represents a major disappointment for the DOJ. But for those who have followed the trial, it is no surprise. Many thought outright acquittal was a real possibility. A mistrial of course is most often declared by the court where the jury has steadfastly indicated that it is unable to reach a unanimous verdict, even after the court usually gives very strong instructions urging the jury to work harder to reach a verdict. There are other situations in which a mistrial may be declared, most often involving error in the way the case is tried or the improper admission of evidence or prejudicial information. In this case, it appears there was a failure to reach unanimity by the jury on a verdict. Often times in such situations the court may allow the counsel to interview jurors about the basis for being hung, including what the final vote was. Obviously, if the vote was heavily in favor of one side, or if, as often happens, there was a lone holdout, then counsel will be able to make informed decisions about a retrial and how the case should be tried in a retrial. It is in the discretion of the court whether to allow jurors to be interviewed. Jurors must also consent. Most judges will allow some limited amount of interviewing, including only allowing the interview to take place in court. Again, it is a discretionary decision. The mistrial puts the government between the proverbial rock and hard place. The DOJ has made this prosecution a marker in their ratcheting up of their enforcement of the FCPA. It is hard to imagine that they would not seek a retrial. Yet the case likely will only get more difficult for the prosecution. The trial exposed the weaknesses of the government's case, including their critical witnesses, the most important of which did not testify. Will DOJ change their strategy? But now defense counsel know the evidence and testimony and can cross examine with a transcript of the DOJ witnesses in hand. Waiting in the wings are another group of experienced defense counsel whose clients' trial has been severed but already scheduled. Finally, some observers of the trial think Judge Leon was surprised and disappointed by what he saw in the government's prosecution sting and the evidence. This looks to be only one chapter in a now much longer story."
Indeed, it would seem that yesterday's mistrial is merely one chapter in a much longer story. The DOJ has indicated that it intends to refile its case against all four defendants, but will a different jury make a difference? What impact will this mistrial have on the other Africa Sting cases scheduled for trial?
Showing posts with label FCPA Jurisprudence. Show all posts
Showing posts with label FCPA Jurisprudence. Show all posts
Friday, July 8, 2011
Thursday, June 16, 2011
Carson Defendants Move To Dismiss Travel Act Counts
The Foreign Corrupt Practices Act is not the only tool the DOJ has used to charge alleged bribery schemes. The FCPA, after all, requires a "foreign official."
With increasing frequency, the DOJ - often in conjunction with FCPA charges - charges Travel Act violations when the conduct at issue is missing a "foreign official" yet concerns allegations of commercial bribery. For a useful overview of the Travel Act and its relevance to FCPA enforcement (broadly speaking), see this recent post from the FCPA Blog.
The DOJ's use of the Travel Act is being challenged in the Carson matter pending in the Central District of California. This is the same case in which "foreign official" was and is being challenged. (See here and here for the prior posts).
Earlier this week, in a significant FCPA-related event, certain of the Carson defendants filed a motion to dismiss the Travel Act charges. As noted in the brief (here), in addition to FCPA charges, the moving defendants were charged with Travel Act violations based on alleged bribes to employees of private companies located in China and Russia.
In sum, the Carson defendants argue as follows.
"In Morrison v. Nat'l Australia Bank Ltd., 130 S. Ct. 2869, 2878 (2010), the Supreme Court explained that unless Congress has clearly indicated that a statute applies extraterritorially, it does not. The Travel Act criminalizes “bribery . . . in violation of the law of the state in which committed,” i.e., domestic bribery. Travel Act application to the foreign bribery alleged in this case violates Morrison’spresumption against the extraterritoriality of United States (“U.S.”) laws."
"While the face of the Travel Act, considered with Morrison’s presumption against extraterritoriality, shows that the Travel Act has no foreign application, the statute’s legislative history confirms it. Consideration of the Travel Act in conjunction with the subsequently enacted FCPA also demonstrates that Congress did not intend that the Travel Act extend to foreign bribery."
"Further, the Travel Act Counts are predicated upon California’s commercial bribery statute, Cal. Penal Code § 641.3 (“PC 641.3”), so the applicability of that statute to Defendants’ conduct is essential to the government’s case. PC 641.3 has never been applied to foreign commercial bribery and its legislative history shows its foreign application was never considered."
"Application of the Travel Act and PC 641.3 would also be unconstitutionally vague. Defendants had no notice that either the Travel Act or PC 641.3 would reach the alleged conduct. The government’s recent application of this fifty-year old statute against foreign commercial bribery, in the face of strong skepticism that it even applies, shows the enforcement of this statute is arbitrary."
"Additionally, the Travel Act allegations are simply defective. The Travel Act prohibits travel or the use of a facility in interstate or foreign commerce with the intent to promote unlawful activity (i.e., state-law bribery), followed by an act to promote the bribery. But the Travel Act Counts fail to allege the essential element of an act following the travel or use of a facility in interstate commerce to promote the alleged bribery. So too, Counts Twelve and Fourteen fail to adequately allege the jurisdictional element of travel or use of a facility in interstate or foreign commerce. Because the Travel Act Counts omit necessary elements, they fail."
"Finally, the Court cannot guess whether the Grand Jury would have even indicted Defendants for conspiracy had it known that the Travel Act did not apply to Defendants’ alleged conduct. Because the defective Travel Act allegations infect the entire conspiracy count, Count One must be dismissed in its entirety."
With increasing frequency, the DOJ - often in conjunction with FCPA charges - charges Travel Act violations when the conduct at issue is missing a "foreign official" yet concerns allegations of commercial bribery. For a useful overview of the Travel Act and its relevance to FCPA enforcement (broadly speaking), see this recent post from the FCPA Blog.
The DOJ's use of the Travel Act is being challenged in the Carson matter pending in the Central District of California. This is the same case in which "foreign official" was and is being challenged. (See here and here for the prior posts).
Earlier this week, in a significant FCPA-related event, certain of the Carson defendants filed a motion to dismiss the Travel Act charges. As noted in the brief (here), in addition to FCPA charges, the moving defendants were charged with Travel Act violations based on alleged bribes to employees of private companies located in China and Russia.
In sum, the Carson defendants argue as follows.
"In Morrison v. Nat'l Australia Bank Ltd., 130 S. Ct. 2869, 2878 (2010), the Supreme Court explained that unless Congress has clearly indicated that a statute applies extraterritorially, it does not. The Travel Act criminalizes “bribery . . . in violation of the law of the state in which committed,” i.e., domestic bribery. Travel Act application to the foreign bribery alleged in this case violates Morrison’spresumption against the extraterritoriality of United States (“U.S.”) laws."
"While the face of the Travel Act, considered with Morrison’s presumption against extraterritoriality, shows that the Travel Act has no foreign application, the statute’s legislative history confirms it. Consideration of the Travel Act in conjunction with the subsequently enacted FCPA also demonstrates that Congress did not intend that the Travel Act extend to foreign bribery."
"Further, the Travel Act Counts are predicated upon California’s commercial bribery statute, Cal. Penal Code § 641.3 (“PC 641.3”), so the applicability of that statute to Defendants’ conduct is essential to the government’s case. PC 641.3 has never been applied to foreign commercial bribery and its legislative history shows its foreign application was never considered."
"Application of the Travel Act and PC 641.3 would also be unconstitutionally vague. Defendants had no notice that either the Travel Act or PC 641.3 would reach the alleged conduct. The government’s recent application of this fifty-year old statute against foreign commercial bribery, in the face of strong skepticism that it even applies, shows the enforcement of this statute is arbitrary."
"Additionally, the Travel Act allegations are simply defective. The Travel Act prohibits travel or the use of a facility in interstate or foreign commerce with the intent to promote unlawful activity (i.e., state-law bribery), followed by an act to promote the bribery. But the Travel Act Counts fail to allege the essential element of an act following the travel or use of a facility in interstate commerce to promote the alleged bribery. So too, Counts Twelve and Fourteen fail to adequately allege the jurisdictional element of travel or use of a facility in interstate or foreign commerce. Because the Travel Act Counts omit necessary elements, they fail."
"Finally, the Court cannot guess whether the Grand Jury would have even indicted Defendants for conspiracy had it known that the Travel Act did not apply to Defendants’ alleged conduct. Because the defective Travel Act allegations infect the entire conspiracy count, Count One must be dismissed in its entirety."
Thursday, June 9, 2011
Significant dd-3 Development in Africa Sting Case
When listing reasons why FCPA enforcement has increased, the 78dd-3 prong of the FCPA's anti-bribery provisions should be on the list.
The FCPA, since its inception in 1977, always applied to "issuers" and "domestic concerns", but the 1998 amendments added a third prong providing jurisdiction as to "persons other than issuers or domestic concerns."
As to this class of persons, the FCPA provides the following jurisdictional requirement: "while in the territory of the United States, corruptly to make use of the mails or any means or instrumentality of interstate commerce or to do any other act in furtherance of an offer, payment, promise to pay, or authorization of the payment of any money, or offer, gift, promise to give, or authorization of the giving of anything of value ...". (emphasis added).
Several recent FCPA enforcement actions have been based on the dd-3 prong of the statute including the actions against the Daimler subsidiaries (see here, here, and here); SSI International Far East (see here); and others.
In the Daimler actions, the jurisdictional statements in the charging documents are as follows. "wire transfers ... sent from Daimler accounts in Germany to financial institutions in the United States and elsewhere, via international and interstate wires, in furtherance of corrupt payments to Russian government officials;" "payments to third party agents, including shell companies established in the United States knowing that such payments would be passed on in whole or in part to Russian government officials;" " "wire transfers ... sent from Daimler accounts in Germany to financial institutions in the United States and elsewhere, via international and interstate wires, in furtherance of corrupt payments to Chinese government officials;" and "enter[ing] into sham consulting contracts with shell companies incorporated in Delaware and Wyoming for the purpose of making improper payments to Croatian government officials."
In SSI, the jurisdictional statement in the charging document is as follows. SSI " transmitted requests to the United States for approval and wire transfer of funds for payment to managers of Schnitzer Steel's customers in South Korea and China in connection with sales of scrap metal to those customers. Accordingly, defendant SSI acted within the territorial jurisdiction of the United States."
In my recent Q&A with Homer Moyer (here) he stated as follow: "To be sure, in enforcing the FCPA, the government tries to overreach from time to time -- exercising anti-bribery jurisdiction over foreign subsidiaries and aggressive applications of dd-3 jurisdictional on the grounds that some step in the process took place “in the territory of the United States” come to mind as occasional examples. When enforcement agencies overreach, they should be challenged."
Yet, as with most things FCPA related, these aggressive jurisdictional theories have generally escaped judicial scrutiny.
Until now.
In what is believed to be the first judicial ruling on the jurisdictional prong of the dd-3 prong of the FCPA, earlier this week, Judge Richard Leon (presiding judge in the Africa Sting cases) granted defendant Pankesh Patel's Rule 29 acquittal motion at the end of the DOJ's as to an FCPA substantive charge premised on his sending a DHL package - containing a purchase agreement in furtherance of the alleged corrupt scheme - from the U.K. to the U.S.
Pankesh Patel is among the first group of four defendants currently on trial and he is described in the indictment as follows. "[A] citizen of the United Kingdom and [...] a “person” other than an issuer or a domestic concern as that term was defined in the FCPA. 15 U.S.C. § 78dd-3(f)(1). Patel was the Managing Director of Company A, a United Kingdom company that acted as a sales agent for companies in the law enforcement and military products industries. As a company that maintained its place of business in the United Kingdom, Company A was a “person” other than an issuer or domestic concern as that term was defined in the FCPA. 15 U.S.C. § 78dd-3(f)(1)."
Among the charges against Patel was Count 3 - that Patel violated the FCPA's anti-bribery provisions by sending, on October 13, 2009, a DHL package from the U.K. to Washington D.C. "containing one original copy of the purchase agreements for the corrupt Phase Two deal."
At the close of the DOJ's case earlier this week, Patel's attorney, Eric Bruce (Kobre & Kim LLP - see here) moved, as did the other defendants as to other charges, pursuant to Rule 29 for a judgement of acquittal.
Judge Leon did not request briefing as to the Rule 29 motions and his decision and reasoning was not reduced to writing - thus what follows are quotes from the hearing transcript.
As to Count 3, Bruce stated that the DOJ "charged Mr. Patel in Count 3 with something that cannot be a crime under U.S. law. And here's what I mean by that. As we saw in the FCPA statute with which he's charged, 78dd-3, because he's a U.K. citizen, operating a U.K. company, he's not a domestic concern under the statute, he can only be liable under the FCPA statute for conduct "while in the territory of the United States." And that's required by statute. That's their sort of jurisdictional hook on him. And what they've done in Count 3, if you look at the language, if you go back to the indictment, Your Honor --."
At this point, the following exchange occurred.
"Judge Leon: Sending it DHL?
Bruce: Yeah from London. So in Count 3 it says on the face of the indictment, DHL from the United Kingdom to Washington, D.C., containing one original copy of the purchase agreement for the corrupt phase 2 deal. So literally they've charged him with being in London and dropping a DHL package in the mail as a substantive FCPA violation, while the statute very clearly requires that he can only be liable for something while in the territory of the United States."
Joey Lipton, on behalf of the DOJ, then stated as follow. "And under the FCPA, as long as he's taking an act as someone who's not a domestic concern, as Mr. Patel is a U.K. citizen, he falls under section 78dd-3, which Mr. Bruce said. He actually has to do less than a U.S. citizen really, because a U.S. citizen has to make use of the mails or interstate commerce. And Mr. Patel just has to take an act, any act, while he's in the United States. Doesn't have to be an illegal act, doesn't have to be anything related to the deal going forward. He has to take any act in the United States, which he clearly does. First of all, he flies over from the U.K. to the United States, which we established through his travel records. And then he meets with the fictitious official and receives a purchase agreement. He then later takes that purchase agreement and sends it back. So the deal's not done at that point, contrary to what Mr. Bruce said. But he's already taken the act, he's here in the United States, he sends it. With regard to Count 3 -- and you don't have to prove all of the elements of the offense while he's in the United States. Doesn't have to be counts or elements 1 through 6 of the FCPA while he actually travels here and does all that stuff. He just has to take an act while he's in the United States. He did take an act. In Count 3 he then sends back the purchase agreement that he gets from the official, from Mahmadou, and he's able -- and that falls under the FCPA because he's already taken an act here when he's done that. So that independently can be its own act. It doesn't have to be that each substantive count is an act while he's in the United States, as long as he takes an act while he's here. So his burden actually as a U.K. citizen is even less than what the other defendants have to do in terms of using the mail or traveling and the like."
The following exchange then occurred between Lipton and Judge Leon.
"Judge Leon: Help me understand why it doesn't have to be an act while in the territory of the United States for Count 3, whereas Count 2 [a substantive FCPA offense against Patel based on his attendance at a Washington D.C. meeting to discuss the allegedly corrupt deal], sounds like you admit that that's the case in Count 2. In Count 3, I think your rationale is since he's already taken one act within the United States, the subsequent act of mailing doesn't have to be within the United States, right?
Lipton: Correct, Judge.
Judge Leon: All right. So what's the rationale for that? Why doesn't the second act have to be within the United States too? I'm not sure I understand that.
Lipton: Well, as long as he takes an act here, then we're allowed to charge him with other acts, like a mailing or a travel that goes to the FCPA substantive offense. So it doesn't have to be that each individual act is the one act while he's in the United States that he's taking. As long as he's taking one act, he can have multiple substantive violations for other acts he's taking as long as --
Judge Leon: Outside the United States?
Lipton: Outside the United States. Correct, Judge.
Judge Leon: Has the Supreme Court said that?
Lipton: Judge, no.
Judge Leon: Has the D.C. Circuit said that?
Lipton: No.
Judge Leon: How about the 2nd Circuit, where you used to prosecute?
Lipton: Judge, there's not a lot of case law on the FCPA, as Your Honor I think is well aware.
Judge Leon: So is this a novel interpretation you want me to take?
Lipton: I don't know if it's a novel interpretation. I think it's an interpretation that's grounded in the law that's out there.
Judge Leon: Is it grounded in the legislative record?
Lipton: We can go back and we can get Your Honor more particulars about the legislative history if Your Honor wants that.
Judge Leon: I would think the more cautious, conservative interpretation would be that each act has to be while in the territory of the United States, wouldn't it?
Lipton: Well, Judge, if you read the statute, the way that I understand it and the way it's been interpreted is that you just have to take an act. And if he's traveling or if he's mailing something from outside that comes into the United States, that that on its own would be sufficient. And I also believe Mr. Patel's charged with an aiding and abetting theory as well, so, I haven't fleshed that out, but there may be an argument to be made that even less has to be done on an aiding and abetting theory. Also, there's a Pinkerton theory, which if he knows as a conspirator that acts are being taken by his codefendants or himself in furtherance of the conspiracy, then anything that's reasonably foreseeable can also be an act, a substantive count. But, Your Honor, I can go back and we can get more details and particulars. Frankly, I don't have the case law or the legislative history to the extent that that's going to be helpful. That goes to that point."
In reply, Bruce stated as follows. "I heard Mr. Lipton say that Mr. Patel only has to do an act in the United States, it doesn't even have to be illegal. If that's the government's position, I'm happy to take that to the D.C. Circuit if there's a conviction on these points. That is absurd, with all due respect to Mr. Lipton. The statute plainly requires, Your Honor, that while in the territory of the United States he has to corruptly make use of the mails or any means or instrumentality of interstate commerce or do any act in furtherance of an offer, payment, promise to pay or authorization. It's clear as day."
After a recess, Judge Leon dismissed Count 3 against Patel.
Judge Leon also dismissed Count 8 (a substantive FCPA violation charge) as to defendant Lee Allen Tolleson; and dismissed Count 10 (money laundering) as to all four defendants. In all other respects, Judge Leon denied the Rule 29 motion.
Judge Leon's ruling is a significant FCPA development as many FCPA charges (as demonstrated by the above cases) are based on similar "novel" jurisdictional theories under the dd-3 prong of the FCPA.
The FCPA, since its inception in 1977, always applied to "issuers" and "domestic concerns", but the 1998 amendments added a third prong providing jurisdiction as to "persons other than issuers or domestic concerns."
As to this class of persons, the FCPA provides the following jurisdictional requirement: "while in the territory of the United States, corruptly to make use of the mails or any means or instrumentality of interstate commerce or to do any other act in furtherance of an offer, payment, promise to pay, or authorization of the payment of any money, or offer, gift, promise to give, or authorization of the giving of anything of value ...". (emphasis added).
Several recent FCPA enforcement actions have been based on the dd-3 prong of the statute including the actions against the Daimler subsidiaries (see here, here, and here); SSI International Far East (see here); and others.
In the Daimler actions, the jurisdictional statements in the charging documents are as follows. "wire transfers ... sent from Daimler accounts in Germany to financial institutions in the United States and elsewhere, via international and interstate wires, in furtherance of corrupt payments to Russian government officials;" "payments to third party agents, including shell companies established in the United States knowing that such payments would be passed on in whole or in part to Russian government officials;" " "wire transfers ... sent from Daimler accounts in Germany to financial institutions in the United States and elsewhere, via international and interstate wires, in furtherance of corrupt payments to Chinese government officials;" and "enter[ing] into sham consulting contracts with shell companies incorporated in Delaware and Wyoming for the purpose of making improper payments to Croatian government officials."
In SSI, the jurisdictional statement in the charging document is as follows. SSI " transmitted requests to the United States for approval and wire transfer of funds for payment to managers of Schnitzer Steel's customers in South Korea and China in connection with sales of scrap metal to those customers. Accordingly, defendant SSI acted within the territorial jurisdiction of the United States."
In my recent Q&A with Homer Moyer (here) he stated as follow: "To be sure, in enforcing the FCPA, the government tries to overreach from time to time -- exercising anti-bribery jurisdiction over foreign subsidiaries and aggressive applications of dd-3 jurisdictional on the grounds that some step in the process took place “in the territory of the United States” come to mind as occasional examples. When enforcement agencies overreach, they should be challenged."
Yet, as with most things FCPA related, these aggressive jurisdictional theories have generally escaped judicial scrutiny.
Until now.
In what is believed to be the first judicial ruling on the jurisdictional prong of the dd-3 prong of the FCPA, earlier this week, Judge Richard Leon (presiding judge in the Africa Sting cases) granted defendant Pankesh Patel's Rule 29 acquittal motion at the end of the DOJ's as to an FCPA substantive charge premised on his sending a DHL package - containing a purchase agreement in furtherance of the alleged corrupt scheme - from the U.K. to the U.S.
Pankesh Patel is among the first group of four defendants currently on trial and he is described in the indictment as follows. "[A] citizen of the United Kingdom and [...] a “person” other than an issuer or a domestic concern as that term was defined in the FCPA. 15 U.S.C. § 78dd-3(f)(1). Patel was the Managing Director of Company A, a United Kingdom company that acted as a sales agent for companies in the law enforcement and military products industries. As a company that maintained its place of business in the United Kingdom, Company A was a “person” other than an issuer or domestic concern as that term was defined in the FCPA. 15 U.S.C. § 78dd-3(f)(1)."
Among the charges against Patel was Count 3 - that Patel violated the FCPA's anti-bribery provisions by sending, on October 13, 2009, a DHL package from the U.K. to Washington D.C. "containing one original copy of the purchase agreements for the corrupt Phase Two deal."
At the close of the DOJ's case earlier this week, Patel's attorney, Eric Bruce (Kobre & Kim LLP - see here) moved, as did the other defendants as to other charges, pursuant to Rule 29 for a judgement of acquittal.
Judge Leon did not request briefing as to the Rule 29 motions and his decision and reasoning was not reduced to writing - thus what follows are quotes from the hearing transcript.
As to Count 3, Bruce stated that the DOJ "charged Mr. Patel in Count 3 with something that cannot be a crime under U.S. law. And here's what I mean by that. As we saw in the FCPA statute with which he's charged, 78dd-3, because he's a U.K. citizen, operating a U.K. company, he's not a domestic concern under the statute, he can only be liable under the FCPA statute for conduct "while in the territory of the United States." And that's required by statute. That's their sort of jurisdictional hook on him. And what they've done in Count 3, if you look at the language, if you go back to the indictment, Your Honor --."
At this point, the following exchange occurred.
"Judge Leon: Sending it DHL?
Bruce: Yeah from London. So in Count 3 it says on the face of the indictment, DHL from the United Kingdom to Washington, D.C., containing one original copy of the purchase agreement for the corrupt phase 2 deal. So literally they've charged him with being in London and dropping a DHL package in the mail as a substantive FCPA violation, while the statute very clearly requires that he can only be liable for something while in the territory of the United States."
Joey Lipton, on behalf of the DOJ, then stated as follow. "And under the FCPA, as long as he's taking an act as someone who's not a domestic concern, as Mr. Patel is a U.K. citizen, he falls under section 78dd-3, which Mr. Bruce said. He actually has to do less than a U.S. citizen really, because a U.S. citizen has to make use of the mails or interstate commerce. And Mr. Patel just has to take an act, any act, while he's in the United States. Doesn't have to be an illegal act, doesn't have to be anything related to the deal going forward. He has to take any act in the United States, which he clearly does. First of all, he flies over from the U.K. to the United States, which we established through his travel records. And then he meets with the fictitious official and receives a purchase agreement. He then later takes that purchase agreement and sends it back. So the deal's not done at that point, contrary to what Mr. Bruce said. But he's already taken the act, he's here in the United States, he sends it. With regard to Count 3 -- and you don't have to prove all of the elements of the offense while he's in the United States. Doesn't have to be counts or elements 1 through 6 of the FCPA while he actually travels here and does all that stuff. He just has to take an act while he's in the United States. He did take an act. In Count 3 he then sends back the purchase agreement that he gets from the official, from Mahmadou, and he's able -- and that falls under the FCPA because he's already taken an act here when he's done that. So that independently can be its own act. It doesn't have to be that each substantive count is an act while he's in the United States, as long as he takes an act while he's here. So his burden actually as a U.K. citizen is even less than what the other defendants have to do in terms of using the mail or traveling and the like."
The following exchange then occurred between Lipton and Judge Leon.
"Judge Leon: Help me understand why it doesn't have to be an act while in the territory of the United States for Count 3, whereas Count 2 [a substantive FCPA offense against Patel based on his attendance at a Washington D.C. meeting to discuss the allegedly corrupt deal], sounds like you admit that that's the case in Count 2. In Count 3, I think your rationale is since he's already taken one act within the United States, the subsequent act of mailing doesn't have to be within the United States, right?
Lipton: Correct, Judge.
Judge Leon: All right. So what's the rationale for that? Why doesn't the second act have to be within the United States too? I'm not sure I understand that.
Lipton: Well, as long as he takes an act here, then we're allowed to charge him with other acts, like a mailing or a travel that goes to the FCPA substantive offense. So it doesn't have to be that each individual act is the one act while he's in the United States that he's taking. As long as he's taking one act, he can have multiple substantive violations for other acts he's taking as long as --
Judge Leon: Outside the United States?
Lipton: Outside the United States. Correct, Judge.
Judge Leon: Has the Supreme Court said that?
Lipton: Judge, no.
Judge Leon: Has the D.C. Circuit said that?
Lipton: No.
Judge Leon: How about the 2nd Circuit, where you used to prosecute?
Lipton: Judge, there's not a lot of case law on the FCPA, as Your Honor I think is well aware.
Judge Leon: So is this a novel interpretation you want me to take?
Lipton: I don't know if it's a novel interpretation. I think it's an interpretation that's grounded in the law that's out there.
Judge Leon: Is it grounded in the legislative record?
Lipton: We can go back and we can get Your Honor more particulars about the legislative history if Your Honor wants that.
Judge Leon: I would think the more cautious, conservative interpretation would be that each act has to be while in the territory of the United States, wouldn't it?
Lipton: Well, Judge, if you read the statute, the way that I understand it and the way it's been interpreted is that you just have to take an act. And if he's traveling or if he's mailing something from outside that comes into the United States, that that on its own would be sufficient. And I also believe Mr. Patel's charged with an aiding and abetting theory as well, so, I haven't fleshed that out, but there may be an argument to be made that even less has to be done on an aiding and abetting theory. Also, there's a Pinkerton theory, which if he knows as a conspirator that acts are being taken by his codefendants or himself in furtherance of the conspiracy, then anything that's reasonably foreseeable can also be an act, a substantive count. But, Your Honor, I can go back and we can get more details and particulars. Frankly, I don't have the case law or the legislative history to the extent that that's going to be helpful. That goes to that point."
In reply, Bruce stated as follows. "I heard Mr. Lipton say that Mr. Patel only has to do an act in the United States, it doesn't even have to be illegal. If that's the government's position, I'm happy to take that to the D.C. Circuit if there's a conviction on these points. That is absurd, with all due respect to Mr. Lipton. The statute plainly requires, Your Honor, that while in the territory of the United States he has to corruptly make use of the mails or any means or instrumentality of interstate commerce or do any act in furtherance of an offer, payment, promise to pay or authorization. It's clear as day."
After a recess, Judge Leon dismissed Count 3 against Patel.
Judge Leon also dismissed Count 8 (a substantive FCPA violation charge) as to defendant Lee Allen Tolleson; and dismissed Count 10 (money laundering) as to all four defendants. In all other respects, Judge Leon denied the Rule 29 motion.
Judge Leon's ruling is a significant FCPA development as many FCPA charges (as demonstrated by the above cases) are based on similar "novel" jurisdictional theories under the dd-3 prong of the FCPA.
Thursday, May 19, 2011
Judge Selna Concludes "The Question of Whether State-Owned Companies Qualify as Instrumentalities Under the FCPA is a Question of Fact"
Yesterday, U.S. District Court Judge James Selna denied the Carson "foreign official" challenge. See here for his written decision.
Judge Selna concluded that "the question of whether state-owned companies qualify as instrumentalties under the FCPA is a question of fact."
Judge Selna stated that "several factors bear on the question of whether a business entity constitutes a government instrumentality" including the following.
• The foreign state’s characterization of the entity and its employees;
• The foreign state’s degree of control over the entity;
• The purpose of the entity’s activities;
• The entity’s obligations and privileges under the foreign state’s law,
including whether the entity exercises exclusive or controlling power to
administer its designated functions;
• The circumstances surrounding the entity’s creation; and
• The foreign state’s extent of ownership of the entity, including the level of
financial support by the state (e.g., subsidies, special tax treatment, and
loans).
[In April, Judge Howard Matz (C.D. of Cal.), in denying the Lindsey "foreign official" challenge (see here for the prior post) identified the following "non-exclusive list" of "various characteristics of government agencies and departments" that fall within the description of instrumentality:
• The entity provides a service to the citizens – indeed, in many cases to all the inhabitants – of the jurisdiction.
• The key officers and directors of the entity are, or are appointed by, government officials.
• The entity is financed, at least in large measure, through governmental
appropriations or through revenues obtained as a result of government-mandated taxes, licenses, fees or royalties, such as entrance fees to a national park.
• The entity is vested with and exercises exclusive or controlling power to administer its designated functions.
• The entity is widely perceived and understood to be performing official (i.e., governmental) functions]
Judge Selna stated that his above-listed "factors are not exclusive, and no single factor is dispositive." "As applicable here, their chief utility is simply to point out that several types of evidence are relevant when determining whether a state-owned company constitutes an 'instrumentality' under the FCPA - with state ownership being only one of several considerations. Accordingly, for these reasons and those discussed in more detail below, Defendants' Motion is not entirely segregable from the evidence to be presented at trial, and therefore must be denied."
Later in the opinion, Judge Selna stated as follows. "Admittedly, a mere monetary investment in a business entity by the government may not be sufficient to transform that entity into a governmental instrumentality. But when a monetary investment is combined with additional factors that objectively indicate the entity is being used as an instrument to carry out governmental objectives, that business would qualify as a governmental instrumentality."
Judge Selna found that the "meaning of the statutory text is clear," "that the meaning of instrumentality should be considered both within the context of the preceding terms of the FCPA [departments and agencies] and in view of the FCPA as a whole," and that the "use of the term instrumentality in the FCPA produces no such crisp exclusion of a state-owned entity." Judge Selna stated: "to the contrary, a state-owned entity - just like an agency or department - is a modality through which a government may conduct its business."
Judge Selna then noted that "the fact that corporations have long been used in this country to carry out governmental objectives supports the conclusion that state-owned companies could be considered an instrumentality." He stated that "given this country's long history of using corporations to carry out governmental objectives, the Court rejects the idea that governmental and commercial actions are necessarily incompatible."
Judge Selna also noted as follows. "The fact that Congress passed FSIA a year before the FCPA, and defined instrumentality to include state-owned companies, ultimately supports the Court's conclusions that an instrumentality could include such entities under the FCPA."
Judge Selna found "that the statutory language of the FCPA is clear, that the statutory scheme is coherent and consistent, and that resort to the legislative history of the FCPA is unnecessary."
Under the heading "Conclusion for Statutory Construction," Judge Selna stated as follows. "The Court concludes that some business entities may be considered an instrumentality but this is a fact-specific question that depends on the nature and characteristics of the business entity." Elsewhere, Judge Selna similarly stated as follows. "state-owned companies may be considered instrumentalities under the FCPA, but whether such companies qualify as instrumentalities is a question of fact."
*****
Earlier this week, Judge Selna issued an "Order Regarding Briefing Schedule and Hearing Date."
Among other things, Judge Selna ordered that "the parties shall submit their proposed jury instructions and legal support for the “instrumentality” and scienter instructions on June 30, 2011. Objections to disputed instructions shall be filed no later than July 25, 2011." "The hearing to address the “instrumentality” and scienter jury instructions, Defendants’ motion to dismiss the Travel Act charges, and Defendants’ Grand Jury motions, shall be scheduled for August 12, 2011 at 1:30 p.m."
Judge Selna concluded that "the question of whether state-owned companies qualify as instrumentalties under the FCPA is a question of fact."
Judge Selna stated that "several factors bear on the question of whether a business entity constitutes a government instrumentality" including the following.
• The foreign state’s characterization of the entity and its employees;
• The foreign state’s degree of control over the entity;
• The purpose of the entity’s activities;
• The entity’s obligations and privileges under the foreign state’s law,
including whether the entity exercises exclusive or controlling power to
administer its designated functions;
• The circumstances surrounding the entity’s creation; and
• The foreign state’s extent of ownership of the entity, including the level of
financial support by the state (e.g., subsidies, special tax treatment, and
loans).
[In April, Judge Howard Matz (C.D. of Cal.), in denying the Lindsey "foreign official" challenge (see here for the prior post) identified the following "non-exclusive list" of "various characteristics of government agencies and departments" that fall within the description of instrumentality:
• The entity provides a service to the citizens – indeed, in many cases to all the inhabitants – of the jurisdiction.
• The key officers and directors of the entity are, or are appointed by, government officials.
• The entity is financed, at least in large measure, through governmental
appropriations or through revenues obtained as a result of government-mandated taxes, licenses, fees or royalties, such as entrance fees to a national park.
• The entity is vested with and exercises exclusive or controlling power to administer its designated functions.
• The entity is widely perceived and understood to be performing official (i.e., governmental) functions]
Judge Selna stated that his above-listed "factors are not exclusive, and no single factor is dispositive." "As applicable here, their chief utility is simply to point out that several types of evidence are relevant when determining whether a state-owned company constitutes an 'instrumentality' under the FCPA - with state ownership being only one of several considerations. Accordingly, for these reasons and those discussed in more detail below, Defendants' Motion is not entirely segregable from the evidence to be presented at trial, and therefore must be denied."
Later in the opinion, Judge Selna stated as follows. "Admittedly, a mere monetary investment in a business entity by the government may not be sufficient to transform that entity into a governmental instrumentality. But when a monetary investment is combined with additional factors that objectively indicate the entity is being used as an instrument to carry out governmental objectives, that business would qualify as a governmental instrumentality."
Judge Selna found that the "meaning of the statutory text is clear," "that the meaning of instrumentality should be considered both within the context of the preceding terms of the FCPA [departments and agencies] and in view of the FCPA as a whole," and that the "use of the term instrumentality in the FCPA produces no such crisp exclusion of a state-owned entity." Judge Selna stated: "to the contrary, a state-owned entity - just like an agency or department - is a modality through which a government may conduct its business."
Judge Selna then noted that "the fact that corporations have long been used in this country to carry out governmental objectives supports the conclusion that state-owned companies could be considered an instrumentality." He stated that "given this country's long history of using corporations to carry out governmental objectives, the Court rejects the idea that governmental and commercial actions are necessarily incompatible."
Judge Selna also noted as follows. "The fact that Congress passed FSIA a year before the FCPA, and defined instrumentality to include state-owned companies, ultimately supports the Court's conclusions that an instrumentality could include such entities under the FCPA."
Judge Selna found "that the statutory language of the FCPA is clear, that the statutory scheme is coherent and consistent, and that resort to the legislative history of the FCPA is unnecessary."
Under the heading "Conclusion for Statutory Construction," Judge Selna stated as follows. "The Court concludes that some business entities may be considered an instrumentality but this is a fact-specific question that depends on the nature and characteristics of the business entity." Elsewhere, Judge Selna similarly stated as follows. "state-owned companies may be considered instrumentalities under the FCPA, but whether such companies qualify as instrumentalities is a question of fact."
*****
Earlier this week, Judge Selna issued an "Order Regarding Briefing Schedule and Hearing Date."
Among other things, Judge Selna ordered that "the parties shall submit their proposed jury instructions and legal support for the “instrumentality” and scienter instructions on June 30, 2011. Objections to disputed instructions shall be filed no later than July 25, 2011." "The hearing to address the “instrumentality” and scienter jury instructions, Defendants’ motion to dismiss the Travel Act charges, and Defendants’ Grand Jury motions, shall be scheduled for August 12, 2011 at 1:30 p.m."
Tuesday, May 17, 2011
"Foreign Official" - What Others Are Saying
What mattered most from the Lindsey matter was not so much the jury verdict (see here for the prior post), but Judge Matz's pre-trial decision on the "foreign official" issue. This is from a jurisprudence standpoint because obviously the jury verdict very much mattered to the defendants, their friends and family, and other employees of Lindsey Manufacturing and I am not trying to diminish or make light of the very human element of the jury verdict.
While we await final rulings in the Carson and O'Shea "foreign official" challenges, let's revisit Judge Matz's April 20th ruling (see here for the previous post) and see what others are saying.
*****
In this client alert, King & Spalding stated as follows. "In his decision, Judge Matz provided a helpful but non-exclusive list of illustrative criteria for determining whether a state-owned entity is sufficiently similar to a government agency or department to consider it a government 'instrumentality.' [...] Importantly, although in this case the court found that CFE may be an instrumentality of the Mexican government, the court’s opinion leaves ample room for argument in future cases that other state-owned corporations – such as those that do not share many characteristics with government departments and agencies, and those that are only
partially owned by a foreign government – may not fall within the FCPA’s reach."
Luce Forward, in this eUpdate, stated as follows. "The Court, however, nimbly sidestepped Lindsey’s legislative history argument. It simply cited the Mexican government’s descriptions of the role of CFE in the government hierarchy and noted that in CFE’s own (English language) website it identified itself as a government agency (and by implication, therefore, a government instrumentality). The Court said its ruling was based on “simple statutory construction” and that its finding on the status of CFE was an issue of law, not of fact, and wouldn’t be subject to further evidence on that question during trial."
This FCPA Update by Debevoise & Plimpton provides a lengthy summary of the recent "foreign official" challenges as well as an overview of Judge Matz's ruling.
In this write-up, Fulbright & Jaworski stated as follows. "The Lindsey Manufacturing ruling is significant as it represents a victory for the DOJ that will, at least for the present time, likely strengthen and embolden the government’s efforts to bring enforcement actions against companies and individuals based on its expansive interpretation of the term “foreign official.” Additionally, while it is not certain to what degree the Lindsey Manufacturing ruling will affect the Carson and O’Shea courts’ decisions, it is probable that the decision will be weighed as both courts consider whether to narrow the current government view of who is a “foreign official” for purposes of FCPA enforcement under the respective facts of each of those cases. The next two decisions will be highly anticipated. Certainty regarding who will be considered a “foreign official” under the FCPA and, thus, who should be considered a potential recipient of an improper payment under the Act, is critical as companies determine how best to formulate an effective compliance program in the current FCPA enforcement environment."
In this memorandum, Simpson & Thacher stated as follows. "The ruling is not a whole-hearted endorsement of DOJ’s broad interpretation of the FCPA’s definition of “foreign official.” The judge did not rule that employees of state-owned entities necessarily fall within the definition of “foreign official.” Rather, he merely left open the possibility that employees of state-owned entities – depending on the specific facts in play – will be “foreign officials.” Indeed, while the judge ultimately ruled that the CFE officers in question may be “foreign officials,” he did so only after a close analysis of factual circumstances that many practitioners might agree presented an easy case for this conclusion. For instance, unlike other types of state owned businesses, CFE provides a service that is constitutionally mandated as an exclusive state function; and CFE even describes itself as a government “agency” on its own website. It remains an open question as to whether employees of other state-owned enterprises that do not share these features – such as a state-owned steel company – would be found to fall within the definition of foreign official. Nonetheless, the judge provided some new guidance for FCPA practitioners seeking to determine whether an entity might be an instrumentality of a foreign government. In the end, the decision leaves ample room for litigants in other situations to dispute whether state-owned enterprises are covered by the FCPA."
In this summary, WilmerHale stated as follows. "Notably, the Court's ruling is a very narrow one. First, the Court clearly rejected the Defendants' argument that no corporation could qualify as an "instrumentality." Second, the Court left open the question of whether all corporations that perform some public function qualify as "instrumentalit[ies]." Finally, the Court's ruling about CFE was based on unusual facts which were unique to the entity. These key aspects of the Court's ruling appear to leave the door open to future challenges."
In this summary, Haynes & Boone stated as follows. "The DOJ and the SEC have been aggressively pushing an expansive interpretation of “foreign official” for years. In the past, the Government’s targets have chosen to settle rather than press the issue and face a jury. That has kept the Government’s analysis from judicial scrutiny. Noriega is the first of several ongoing cases that bucks this trend, puts the Government to its proof, and tests its interpretation of the statute. The result should be a clearer understanding of who is a foreign official for FCPA purposes. The decision released last week is a strong affirmation of the Government’s more forward-leaning stance on the question. The decision’s five-factor test to determine whether a state-owned corporation is an instrumentality of the state offers clarity on a narrow but important question facing global companies doing business overseas. If the foreign company is created by statute, overseen by government officials or appointees, financed through taxes, exercises exclusive control over its designated functions, and is widely understood to be performing government functions, then that company is likely an instrumentality of a government and the FCPA applies. The potential game-changer in the opinion is the Court’s willingness to accept the Government’s contention that “foreign official” should be construed in light of the OECD Convention. The Convention definition of “public enterprise” includes “any enterprise” over which a government “may, directly or indirectly, exercise a dominant influence.” In certain jurisdictions where governments play a more active role in the economy, the Government may have many different ways to directly or indirectly exercise dominant influence. This could potentially expand the scope of covered foreign officials under the FCPA in many jurisdictions."
While we await final rulings in the Carson and O'Shea "foreign official" challenges, let's revisit Judge Matz's April 20th ruling (see here for the previous post) and see what others are saying.
*****
In this client alert, King & Spalding stated as follows. "In his decision, Judge Matz provided a helpful but non-exclusive list of illustrative criteria for determining whether a state-owned entity is sufficiently similar to a government agency or department to consider it a government 'instrumentality.' [...] Importantly, although in this case the court found that CFE may be an instrumentality of the Mexican government, the court’s opinion leaves ample room for argument in future cases that other state-owned corporations – such as those that do not share many characteristics with government departments and agencies, and those that are only
partially owned by a foreign government – may not fall within the FCPA’s reach."
Luce Forward, in this eUpdate, stated as follows. "The Court, however, nimbly sidestepped Lindsey’s legislative history argument. It simply cited the Mexican government’s descriptions of the role of CFE in the government hierarchy and noted that in CFE’s own (English language) website it identified itself as a government agency (and by implication, therefore, a government instrumentality). The Court said its ruling was based on “simple statutory construction” and that its finding on the status of CFE was an issue of law, not of fact, and wouldn’t be subject to further evidence on that question during trial."
This FCPA Update by Debevoise & Plimpton provides a lengthy summary of the recent "foreign official" challenges as well as an overview of Judge Matz's ruling.
In this write-up, Fulbright & Jaworski stated as follows. "The Lindsey Manufacturing ruling is significant as it represents a victory for the DOJ that will, at least for the present time, likely strengthen and embolden the government’s efforts to bring enforcement actions against companies and individuals based on its expansive interpretation of the term “foreign official.” Additionally, while it is not certain to what degree the Lindsey Manufacturing ruling will affect the Carson and O’Shea courts’ decisions, it is probable that the decision will be weighed as both courts consider whether to narrow the current government view of who is a “foreign official” for purposes of FCPA enforcement under the respective facts of each of those cases. The next two decisions will be highly anticipated. Certainty regarding who will be considered a “foreign official” under the FCPA and, thus, who should be considered a potential recipient of an improper payment under the Act, is critical as companies determine how best to formulate an effective compliance program in the current FCPA enforcement environment."
In this memorandum, Simpson & Thacher stated as follows. "The ruling is not a whole-hearted endorsement of DOJ’s broad interpretation of the FCPA’s definition of “foreign official.” The judge did not rule that employees of state-owned entities necessarily fall within the definition of “foreign official.” Rather, he merely left open the possibility that employees of state-owned entities – depending on the specific facts in play – will be “foreign officials.” Indeed, while the judge ultimately ruled that the CFE officers in question may be “foreign officials,” he did so only after a close analysis of factual circumstances that many practitioners might agree presented an easy case for this conclusion. For instance, unlike other types of state owned businesses, CFE provides a service that is constitutionally mandated as an exclusive state function; and CFE even describes itself as a government “agency” on its own website. It remains an open question as to whether employees of other state-owned enterprises that do not share these features – such as a state-owned steel company – would be found to fall within the definition of foreign official. Nonetheless, the judge provided some new guidance for FCPA practitioners seeking to determine whether an entity might be an instrumentality of a foreign government. In the end, the decision leaves ample room for litigants in other situations to dispute whether state-owned enterprises are covered by the FCPA."
In this summary, WilmerHale stated as follows. "Notably, the Court's ruling is a very narrow one. First, the Court clearly rejected the Defendants' argument that no corporation could qualify as an "instrumentality." Second, the Court left open the question of whether all corporations that perform some public function qualify as "instrumentalit[ies]." Finally, the Court's ruling about CFE was based on unusual facts which were unique to the entity. These key aspects of the Court's ruling appear to leave the door open to future challenges."
In this summary, Haynes & Boone stated as follows. "The DOJ and the SEC have been aggressively pushing an expansive interpretation of “foreign official” for years. In the past, the Government’s targets have chosen to settle rather than press the issue and face a jury. That has kept the Government’s analysis from judicial scrutiny. Noriega is the first of several ongoing cases that bucks this trend, puts the Government to its proof, and tests its interpretation of the statute. The result should be a clearer understanding of who is a foreign official for FCPA purposes. The decision released last week is a strong affirmation of the Government’s more forward-leaning stance on the question. The decision’s five-factor test to determine whether a state-owned corporation is an instrumentality of the state offers clarity on a narrow but important question facing global companies doing business overseas. If the foreign company is created by statute, overseen by government officials or appointees, financed through taxes, exercises exclusive control over its designated functions, and is widely understood to be performing government functions, then that company is likely an instrumentality of a government and the FCPA applies. The potential game-changer in the opinion is the Court’s willingness to accept the Government’s contention that “foreign official” should be construed in light of the OECD Convention. The Convention definition of “public enterprise” includes “any enterprise” over which a government “may, directly or indirectly, exercise a dominant influence.” In certain jurisdictions where governments play a more active role in the economy, the Government may have many different ways to directly or indirectly exercise dominant influence. This could potentially expand the scope of covered foreign officials under the FCPA in many jurisdictions."
Monday, May 16, 2011
One Win, One Loss
The conviction last week of Lindsey Manufacturing Inc. (see here for the prior post) was indeed the first instance of a company being tried and convicted on FCPA violations - as noted in the DOJ's release (here).
However, contrary to numerous media reports, it was not the first instance of a company putting the DOJ to its burden of proof in an FCPA trial.
That first occurred in 1990-1991 when Harris Corporation (and certain of its executives) prevailed in an FCPA trial.
Thus, the DOJ's record in corporate FCPA trials is one win, one loss.
This post summarizes the Harris Corporation enforcement action and includes information gleaned from original source newspaper accounts.
*****
In 1990, Harris Corporation ("Harris"), John D. Iacobucci, and Ronald L. Schultz were charged in a criminal indictment (here) filed in U.S. District Court - Northern District of California.
As alleged in the indictment, Harris was a Delaware publicly-traded corporation headquartered in Melbourne, Florida and through its Digital Telephone Systems ("DTS") division it manufactured telephone switching systems. Iacobucci was the Vice President and General Manager of DTS and Schultz was, at various times, Director of Human Relations and Facilities at DTS, Director of Administration at DTS and responsible for Contracts Administration.
Robert O'Hara (an unindicted co-conspirator - more on O'Hara below) was the President and sole stock-holder of Polo Associations Corporation, Inc. - a Delaware corporation created by O'Hara "to engage in the business of advising telecommunications companies of ways to obtain business in Latin American countries, particularly Colombia."
The conduct at issue involved "The Empress Nacional de Telecomunicaciones or Telecom" an alleged "instrumentality of the Government of Colombia responsible for the operation of telex services, maritime communications, and long distance and international telephone and telegraph services within the country of Colombia." According to the indictment, "Telecom was an instrumentality of the Government of Colombia within the meaning of the FCPA." However, as detailed below, none of the improper payments at issue were alleged to have been paid to Telecom officials.
The indictment charged that Harris, Iacobucci, Schultz and O'Hara conspired to violate the FCPA by paying and authorizing the payment of money to O'Hara "while knowing that a portion of such money" would be offered or given, directly or indirectly, to "foreign officials, that is, officials of the Government of Colombia" in order to influence the officials to award government telecommunications contracts to Harris in violation of the FCPA. The indictment further charged a conspiracy to violate the FCPA's books and records provisions.
According to the indictment, part of the conspiracy was that Harris retained O'Hara "as a consultant based upon the representation of O'Hara that he had connections with officials of the Government of Colombia that he would use to assist" Harris in obtaining telecommunications contracts. According to the indictment, Harris agreed to pay O'Hara a 10% commission of the value of any telecommunications contracts entered into between Harris and Telecom.
The indictment does not allege that any payments went to officials of Telecom, but rather that payments went to a "member of the Camara de Representates (CDR), the national legislative of Colombia;" a local Colombian company "that was owned in part by a foreign official, that is, a member of the CDR;" and "various officials of the Government of Colombia."
The indictment alleged specific meetings and documents that set into motion the bribery scheme.
In addition to the conspiracy charge, the indictment also charged substantive FCPA anti-bribery and FCPA books and records offenses.
Original source newspaper reports from the time detail as follows.
Theodore S. Greenberg, deputy chief of the Fraud Section of the Criminal Division, stated upon issuance of the indictment - "The department continues to view violations of the Foreign Corrupt Practices Act as serious matters and will pursue them accordingly."
A statement from John Hartley, Chairman and Chief Executive of Harris, stated as follows. "We believe that these charges are based upon a distorted view of the facts, and they represent a radical departure from existing enforcement policies. We have cooperated fully with the Justice Department in its investigation of the allegations, providing clear evidence refuting the charges."
At the time of the indictment, Harris Corp. was ranked 57th among Department of Defense contractors in terms of total dollar volume of contracts awarded.
Harris, Iacobucci, and Schultz put the DOJ to its burden of proof and the criminal trial began on March 4, 1991. The San Francisco Examiner stated that "the trial is significant because the Justice Department prosecutes only a few such foreign bribery cases a year."
The same article contained the following background on the case. "The government's case is based on the testimony of a whistle-blower who handed over company documents to the FBI and a consultant who has pleaded guilty to helping Harris Corp. falsify its records. [...] The defendants insist that they authorized only legitimate consulting payments to secure Colombia's business and claim that the government's case rests on trumped-up charges by a disgruntled employee. [...] At a pretrial hearing, U.S. District Judge Charles A. Legge rejected a request by defense attorneys to exclude dozens of Harris Corp. documents from the trial. They claim that [the whistleblower] stole the documents on behalf of the FBI. [...] A key prosecution witness is Robert O'Hara, a consultant who is based in New York. He pleaded guilty in August to a charge of aiding Harris Corp. with falsifying its financial records."
On March 19, 1991, Judge Legge, "after hearing the prosecution's case ... granted a verdict of acquittal ... the defense was not called upon to present its case." The San Francisco Chronicle stated as follows. "Shortly after the government rested its case, U.S. District Judge Charles Legge of San Francisco ruled from the bench that 'no reasonable jury' could convict the company nor its executives on any of the five bribery-related counts for which they were indicted. Citing insufficient evidence, Legge said the government had failed to show any intent by the defendants to enter into a criminal conspiracy. Legge also said it was the first time in his six years on the federal bench that he had dismissed a criminal case at mid-trial for lack of evidence." The Chronicle called the dismissal a "stunning defeat for the Justice Department" after a 12-member jury heard two weeks of testimony by prosecution witnesses.
The Chronicle further stated as follows. "The acquittal also reinforced the Justice Department's poor track record of prosecutions in overseas bribery cases. Federal prosecutors have won only two dozen convictions under the Foreign Corrupt Practices Act of 1977 since the law was adopted more than a decade ago."
Hartley (the above referenced Chairman and Chief Executive of Harris) stated as follows. "We're very pleased that our Digital Telephone Systems Division and its employees have been vindicated, but we believe the charges should never have been brought in the first place. The Justice Department's case was based upon a distorted view of the facts and represented a radical departure from existing enforcement policies. As a result, American taxpayers have been burdened with unnecessary litigation costs, and Harris has incurred more than $3 million in legal fees, spent many hundreds of hours of our people's time, and suffered a substantial disruption of the corporation's business to prove an absence of wrongdoing that should have been apparent from the beginning. The case has also placed a heavy strain on our two employees named in the indictment."
Michael Fayad, a lawyer for Harris, stated as follows. "[Judge Legge] decided to dismiss the case for all of the same reasons we had pointed out to the Department of Justice early on, prior to indictment ... that there was no bribe, no contract, no agreement to pay a bribe, no corrupt intent."
Charles Bryer, Schultz's lawyer, stated as follows. "The case was paper-thin, built on a con man's story and a disgruntled employee's vengeance. We were conned to pay some money that we thought was going to be used for a legitimate purpose."
According to newspaper accounts, DOJ prosecutor Scott MacKay said the government brought the case in good faith - "We're disappointed with the judge's ruling. We feel that we presented a good case, but we accept the judge's ruling."
Today, Harris Corporation is alive and well. See here for its webpage.
As to O'Hara, as suggested above, he pleaded guilty to related charges in the Eastern District of N.Y. before the Harris et. al trial. However, after the California directed verdict of acquittal, but before his sentencing, O'Hara sought to withdraw his guilty plea. The trial court judge denied his motion and concluded that the acquittal of O'Hara's alleged co-conspirators was not a "fair and just reason" sufficient to allow O'Hara to withdraw his guilty plea. O'Hara appealed and the Second Circuit affirmed (See 960 F.2d 11).
*****
If non-prosecution and deferred prosecution agreements existed in 1990, would Harris have resolved the enforcement action via such a resolution vehicle? Likely yes. Yet Harris and the individual defendants all prevailed at trial.
Was there anything wrong with this prior era when NPAs and DPAs were not an option in an FCPA enforcement action? I submit no and believe that abolishing NPAs and DPAs in the FCPA context should be subject to serious debate and discussion. For more on this issue (see here).
However, contrary to numerous media reports, it was not the first instance of a company putting the DOJ to its burden of proof in an FCPA trial.
That first occurred in 1990-1991 when Harris Corporation (and certain of its executives) prevailed in an FCPA trial.
Thus, the DOJ's record in corporate FCPA trials is one win, one loss.
This post summarizes the Harris Corporation enforcement action and includes information gleaned from original source newspaper accounts.
*****
In 1990, Harris Corporation ("Harris"), John D. Iacobucci, and Ronald L. Schultz were charged in a criminal indictment (here) filed in U.S. District Court - Northern District of California.
As alleged in the indictment, Harris was a Delaware publicly-traded corporation headquartered in Melbourne, Florida and through its Digital Telephone Systems ("DTS") division it manufactured telephone switching systems. Iacobucci was the Vice President and General Manager of DTS and Schultz was, at various times, Director of Human Relations and Facilities at DTS, Director of Administration at DTS and responsible for Contracts Administration.
Robert O'Hara (an unindicted co-conspirator - more on O'Hara below) was the President and sole stock-holder of Polo Associations Corporation, Inc. - a Delaware corporation created by O'Hara "to engage in the business of advising telecommunications companies of ways to obtain business in Latin American countries, particularly Colombia."
The conduct at issue involved "The Empress Nacional de Telecomunicaciones or Telecom" an alleged "instrumentality of the Government of Colombia responsible for the operation of telex services, maritime communications, and long distance and international telephone and telegraph services within the country of Colombia." According to the indictment, "Telecom was an instrumentality of the Government of Colombia within the meaning of the FCPA." However, as detailed below, none of the improper payments at issue were alleged to have been paid to Telecom officials.
The indictment charged that Harris, Iacobucci, Schultz and O'Hara conspired to violate the FCPA by paying and authorizing the payment of money to O'Hara "while knowing that a portion of such money" would be offered or given, directly or indirectly, to "foreign officials, that is, officials of the Government of Colombia" in order to influence the officials to award government telecommunications contracts to Harris in violation of the FCPA. The indictment further charged a conspiracy to violate the FCPA's books and records provisions.
According to the indictment, part of the conspiracy was that Harris retained O'Hara "as a consultant based upon the representation of O'Hara that he had connections with officials of the Government of Colombia that he would use to assist" Harris in obtaining telecommunications contracts. According to the indictment, Harris agreed to pay O'Hara a 10% commission of the value of any telecommunications contracts entered into between Harris and Telecom.
The indictment does not allege that any payments went to officials of Telecom, but rather that payments went to a "member of the Camara de Representates (CDR), the national legislative of Colombia;" a local Colombian company "that was owned in part by a foreign official, that is, a member of the CDR;" and "various officials of the Government of Colombia."
The indictment alleged specific meetings and documents that set into motion the bribery scheme.
In addition to the conspiracy charge, the indictment also charged substantive FCPA anti-bribery and FCPA books and records offenses.
Original source newspaper reports from the time detail as follows.
Theodore S. Greenberg, deputy chief of the Fraud Section of the Criminal Division, stated upon issuance of the indictment - "The department continues to view violations of the Foreign Corrupt Practices Act as serious matters and will pursue them accordingly."
A statement from John Hartley, Chairman and Chief Executive of Harris, stated as follows. "We believe that these charges are based upon a distorted view of the facts, and they represent a radical departure from existing enforcement policies. We have cooperated fully with the Justice Department in its investigation of the allegations, providing clear evidence refuting the charges."
At the time of the indictment, Harris Corp. was ranked 57th among Department of Defense contractors in terms of total dollar volume of contracts awarded.
Harris, Iacobucci, and Schultz put the DOJ to its burden of proof and the criminal trial began on March 4, 1991. The San Francisco Examiner stated that "the trial is significant because the Justice Department prosecutes only a few such foreign bribery cases a year."
The same article contained the following background on the case. "The government's case is based on the testimony of a whistle-blower who handed over company documents to the FBI and a consultant who has pleaded guilty to helping Harris Corp. falsify its records. [...] The defendants insist that they authorized only legitimate consulting payments to secure Colombia's business and claim that the government's case rests on trumped-up charges by a disgruntled employee. [...] At a pretrial hearing, U.S. District Judge Charles A. Legge rejected a request by defense attorneys to exclude dozens of Harris Corp. documents from the trial. They claim that [the whistleblower] stole the documents on behalf of the FBI. [...] A key prosecution witness is Robert O'Hara, a consultant who is based in New York. He pleaded guilty in August to a charge of aiding Harris Corp. with falsifying its financial records."
On March 19, 1991, Judge Legge, "after hearing the prosecution's case ... granted a verdict of acquittal ... the defense was not called upon to present its case." The San Francisco Chronicle stated as follows. "Shortly after the government rested its case, U.S. District Judge Charles Legge of San Francisco ruled from the bench that 'no reasonable jury' could convict the company nor its executives on any of the five bribery-related counts for which they were indicted. Citing insufficient evidence, Legge said the government had failed to show any intent by the defendants to enter into a criminal conspiracy. Legge also said it was the first time in his six years on the federal bench that he had dismissed a criminal case at mid-trial for lack of evidence." The Chronicle called the dismissal a "stunning defeat for the Justice Department" after a 12-member jury heard two weeks of testimony by prosecution witnesses.
The Chronicle further stated as follows. "The acquittal also reinforced the Justice Department's poor track record of prosecutions in overseas bribery cases. Federal prosecutors have won only two dozen convictions under the Foreign Corrupt Practices Act of 1977 since the law was adopted more than a decade ago."
Hartley (the above referenced Chairman and Chief Executive of Harris) stated as follows. "We're very pleased that our Digital Telephone Systems Division and its employees have been vindicated, but we believe the charges should never have been brought in the first place. The Justice Department's case was based upon a distorted view of the facts and represented a radical departure from existing enforcement policies. As a result, American taxpayers have been burdened with unnecessary litigation costs, and Harris has incurred more than $3 million in legal fees, spent many hundreds of hours of our people's time, and suffered a substantial disruption of the corporation's business to prove an absence of wrongdoing that should have been apparent from the beginning. The case has also placed a heavy strain on our two employees named in the indictment."
Michael Fayad, a lawyer for Harris, stated as follows. "[Judge Legge] decided to dismiss the case for all of the same reasons we had pointed out to the Department of Justice early on, prior to indictment ... that there was no bribe, no contract, no agreement to pay a bribe, no corrupt intent."
Charles Bryer, Schultz's lawyer, stated as follows. "The case was paper-thin, built on a con man's story and a disgruntled employee's vengeance. We were conned to pay some money that we thought was going to be used for a legitimate purpose."
According to newspaper accounts, DOJ prosecutor Scott MacKay said the government brought the case in good faith - "We're disappointed with the judge's ruling. We feel that we presented a good case, but we accept the judge's ruling."
Today, Harris Corporation is alive and well. See here for its webpage.
As to O'Hara, as suggested above, he pleaded guilty to related charges in the Eastern District of N.Y. before the Harris et. al trial. However, after the California directed verdict of acquittal, but before his sentencing, O'Hara sought to withdraw his guilty plea. The trial court judge denied his motion and concluded that the acquittal of O'Hara's alleged co-conspirators was not a "fair and just reason" sufficient to allow O'Hara to withdraw his guilty plea. O'Hara appealed and the Second Circuit affirmed (See 960 F.2d 11).
*****
If non-prosecution and deferred prosecution agreements existed in 1990, would Harris have resolved the enforcement action via such a resolution vehicle? Likely yes. Yet Harris and the individual defendants all prevailed at trial.
Was there anything wrong with this prior era when NPAs and DPAs were not an option in an FCPA enforcement action? I submit no and believe that abolishing NPAs and DPAs in the FCPA context should be subject to serious debate and discussion. For more on this issue (see here).
Wednesday, May 11, 2011
Guilty Verdicts in Lindsey Case
This past October, I asked (here) what will happen to Lindsey Manufacturing Company?
The company (a privately held manufacturer of electrical transmission towers and related products that employs approximately 100 individuals) was indicted along with its President, Keith Lindsey, and its Chief Financial Officer, Steven Lee. [Others outside the company were charged as well in connection with the case].
The case represented a rare instance of a criminal indictment of a company in the FCPA context.
Yesterday, after a five week trial in federal court in the C.D. of California, a jury returned guilty verdicts.
As noted in this DOJ release, Lindsey Manufacturing, Lindsey and Lee were convicted of one count of conspiracy to violate the FCPA and five counts of FCPA violations. The conduct at issue focused on commission payments made by Lindsey Manufacturing to Enrique and Angela Aguilar (directors of Grupo Internacional de Asesores S.A.) that "would be used to pay bribes to Mexican officials in exchange for [Comisión Federal de Electricidad (CFE), a state-owned utility company] awarding contracts to Lindsey Manufacturing." As noted in the DOJ release, Angela Aguilar was convicted of one count of money laundering conspiracy and the court entered a judgment of acquittal prior to the jury’s verdict on one substantive count of money laundering against her. Enrique Aguilar is currently a fugitive.
Sentencing for Lindsey Manufacturing, Lindsey and Lee is scheduled for Sept. 16, 2011. Angela Aguilar’s sentencing is scheduled for Aug. 12, 2011.
Reacting to the guilty verdicts, Assistant Attorney General Lanny Breuer stated as follows. "“Today’s guilty verdicts are an important milestone in our Foreign Corrupt Practices Act (FCPA) enforcement efforts. Lindsey Manufacturing is the first company to be tried and convicted on FCPA violations, but it will not be the last. Foreign corruption undermines the rule of law, stifling competition and the health of international markets and American businesses. As this prosecution shows, we are fiercely committed to bringing to justice all the players in these bribery schemes – the executives who conceive of the criminal plans, the people they use to pay the bribes, and the companies that knowingly allow these schemes to flourish. Bribery has real consequences.”
The Lindsey case attracted much interest as it was one of the "foreign official" challenges. See here for the full briefing and here for the written decision.
Prior to the jury verdicts, on Monday, Jan Handzlik (here - attorney for defendants Lindsey Manufacturing and Keith Lindsey) and Janet Levin (here - attorney for defendant Steve Lee) filed a motion to "Dismiss the Indictment with Prejudice due to Repeated and Intentional Government Misconduct." Handzlik is quoted in this story by Samuel Rubenfeld at the Wall Street Journal as saying "we continue to believe in our clients' innocence and will pursue our motion to dismiss the indictment on grounds of prosecutorial misconduct." A hearing on that motion is set for June 6. Aguilar's attorney, Stephen Larson (here) reportedly intends to seek a motion of acquittal as to the one charge his client was found guilty of.
Another case concerning alleged payments to CFE is pending in the Southern District of Texas against John Joseph O'Shea. See here for more.
So the question remains - what will happen to Lindsey Manufacturing?
As a small privately held company, Lindsey Manufacturing was able to aggressively mount a legal defense that publicly traded companies are unwilling, or some would say are logistically unable, to mount. Whether one agrees with certain of the judge's pre-trial rulings or not, or whether one finds arguments about prosecutorial misconduct persuasive or not, the fact is, the Lindsey case, unlike the majority of FCPA enforcement actions, was subject to an adversary proceeding in which someone other than the enforcement agencies weighed in on the issues - and that is a good thing!
The company (a privately held manufacturer of electrical transmission towers and related products that employs approximately 100 individuals) was indicted along with its President, Keith Lindsey, and its Chief Financial Officer, Steven Lee. [Others outside the company were charged as well in connection with the case].
The case represented a rare instance of a criminal indictment of a company in the FCPA context.
Yesterday, after a five week trial in federal court in the C.D. of California, a jury returned guilty verdicts.
As noted in this DOJ release, Lindsey Manufacturing, Lindsey and Lee were convicted of one count of conspiracy to violate the FCPA and five counts of FCPA violations. The conduct at issue focused on commission payments made by Lindsey Manufacturing to Enrique and Angela Aguilar (directors of Grupo Internacional de Asesores S.A.) that "would be used to pay bribes to Mexican officials in exchange for [Comisión Federal de Electricidad (CFE), a state-owned utility company] awarding contracts to Lindsey Manufacturing." As noted in the DOJ release, Angela Aguilar was convicted of one count of money laundering conspiracy and the court entered a judgment of acquittal prior to the jury’s verdict on one substantive count of money laundering against her. Enrique Aguilar is currently a fugitive.
Sentencing for Lindsey Manufacturing, Lindsey and Lee is scheduled for Sept. 16, 2011. Angela Aguilar’s sentencing is scheduled for Aug. 12, 2011.
Reacting to the guilty verdicts, Assistant Attorney General Lanny Breuer stated as follows. "“Today’s guilty verdicts are an important milestone in our Foreign Corrupt Practices Act (FCPA) enforcement efforts. Lindsey Manufacturing is the first company to be tried and convicted on FCPA violations, but it will not be the last. Foreign corruption undermines the rule of law, stifling competition and the health of international markets and American businesses. As this prosecution shows, we are fiercely committed to bringing to justice all the players in these bribery schemes – the executives who conceive of the criminal plans, the people they use to pay the bribes, and the companies that knowingly allow these schemes to flourish. Bribery has real consequences.”
The Lindsey case attracted much interest as it was one of the "foreign official" challenges. See here for the full briefing and here for the written decision.
Prior to the jury verdicts, on Monday, Jan Handzlik (here - attorney for defendants Lindsey Manufacturing and Keith Lindsey) and Janet Levin (here - attorney for defendant Steve Lee) filed a motion to "Dismiss the Indictment with Prejudice due to Repeated and Intentional Government Misconduct." Handzlik is quoted in this story by Samuel Rubenfeld at the Wall Street Journal as saying "we continue to believe in our clients' innocence and will pursue our motion to dismiss the indictment on grounds of prosecutorial misconduct." A hearing on that motion is set for June 6. Aguilar's attorney, Stephen Larson (here) reportedly intends to seek a motion of acquittal as to the one charge his client was found guilty of.
Another case concerning alleged payments to CFE is pending in the Southern District of Texas against John Joseph O'Shea. See here for more.
So the question remains - what will happen to Lindsey Manufacturing?
As a small privately held company, Lindsey Manufacturing was able to aggressively mount a legal defense that publicly traded companies are unwilling, or some would say are logistically unable, to mount. Whether one agrees with certain of the judge's pre-trial rulings or not, or whether one finds arguments about prosecutorial misconduct persuasive or not, the fact is, the Lindsey case, unlike the majority of FCPA enforcement actions, was subject to an adversary proceeding in which someone other than the enforcement agencies weighed in on the issues - and that is a good thing!
Tuesday, May 10, 2011
Oral Argument in Carson "Foreign Official" Challenge
Jaime Guerrero (Foley & Lardner - here) provides a first-hand account of yesterday's oral arguments in the Carson "foreign official" challenge.
See here for a prior post, including links to the briefs.
*****
On Monday afternoon, May 9, 2011, United States District Judge James V. Selna heard oral arguments on defendants’ motion to dismiss the indictment on the “foreign official” issue in the Carson case in the Central District of California. In their moving papers, the defendants made three separate arguments in support of their motion to dismiss Counts One through Ten of the Indictment. Specifically, the defendants argued that: first, as a matter of statutory interpretation, employees of the state-owned companies identified in the indictment fall beyond the scope of the FCPA’s definition of “foreign official;” second, to the extent there is an ambiguity in the statute, the rule of lenity mandates that the motion be resolved in defendants’ favor; and third, to the extent the FCPA could be construed to proscribe payments made or promised to employees of state-owned companies, the statute is unconstitutionally vague as applied to defendants.
During the hearing, counsel for the defendants focused the majority of their arguments on the FCPA’s purported lack of definition for “instrumentality” within the term “foreign official.” Defendants noted that Congress did not define “instrumentality” within the statute and that the government’s position created a definition that was unworkable and overbroad. Moreover, the defendants argued that it was impractical to wait for the trial to decide the factors that the jury would consider to determine whether the employees of state-owned companies were “foreign officials.” The defendants also argued that the Supreme Court’s recent decision in Skilling v. United States, 561 U.S. ___, 130 S. Ct. 2896, 2933 (2010), was the proper framework for deciding the FCPA “foreign official” challenge. Thereafter, the defendants argued that the FCPA statute was “vague as applied,” as there was no way for the individual defendants to have done anything more to determine if a state-owned entity was an “instrumentality.” The defendants argued that there was no rhyme or reason to the government’s determination of whether a state-owned entity was an “instrumentality,” and, as such, the statute was vague. Finally, the defendants argued that the rule of lenity mandated that the Court dismiss the indictment, as the statute was unconstitutionally ambiguous and that, if it was a tie between the government’s position and the defendants’ position, that the tie should go to the defendants.
The government responded first by noting that the defendants’ ignored the standards the Court had to apply when deciding a motion to dismiss the indictment, as the issues presented in the motion raised factual issues that had to be resolved by a jury. Citing Hagner v. United States, 285 U.S. 427 (1932), the government argued that because there were factual issues outstanding related to whether the state-owned entities were “instrumentalities,” the Court could not grant the motion to dismiss. The government also argued that the statute was not void for vagueness, as the statute’s mens rea or scienter requirement served to defeat the defendants’ claim that they did not know what they were doing was wrong. In particular, however, the government noted that the statute did not require a specific intent, but instead the government need only prove that the defendants knew that what they were doing was wrong.
District Judge Selna permitted the parties to argue their respective positions, interjecting on few occasions. During the defendants’ arguments that the definition of “instrumentality” in the Foreign Sovereign Immunities Act (FSIA) could not be used as a reference point, or definition, for “instrumentality” in the FCPA statute, District Judge Selna asked whether the Court could infer whether Congress intended for the term “instrumentality” to have the same definition in the FCPA as the FSIA. District Judge Selna also inquired whether a finding that a state-owned entity was an “instrumentality” was self-evident, as the nature of the entity would be before the jury.
Ultimately, after hearing all arguments on defendants’ motion to dismiss, District Judge Selna took the motion under submission and reserved a final ruling on the motion for a later date.
See here for a prior post, including links to the briefs.
*****
On Monday afternoon, May 9, 2011, United States District Judge James V. Selna heard oral arguments on defendants’ motion to dismiss the indictment on the “foreign official” issue in the Carson case in the Central District of California. In their moving papers, the defendants made three separate arguments in support of their motion to dismiss Counts One through Ten of the Indictment. Specifically, the defendants argued that: first, as a matter of statutory interpretation, employees of the state-owned companies identified in the indictment fall beyond the scope of the FCPA’s definition of “foreign official;” second, to the extent there is an ambiguity in the statute, the rule of lenity mandates that the motion be resolved in defendants’ favor; and third, to the extent the FCPA could be construed to proscribe payments made or promised to employees of state-owned companies, the statute is unconstitutionally vague as applied to defendants.
During the hearing, counsel for the defendants focused the majority of their arguments on the FCPA’s purported lack of definition for “instrumentality” within the term “foreign official.” Defendants noted that Congress did not define “instrumentality” within the statute and that the government’s position created a definition that was unworkable and overbroad. Moreover, the defendants argued that it was impractical to wait for the trial to decide the factors that the jury would consider to determine whether the employees of state-owned companies were “foreign officials.” The defendants also argued that the Supreme Court’s recent decision in Skilling v. United States, 561 U.S. ___, 130 S. Ct. 2896, 2933 (2010), was the proper framework for deciding the FCPA “foreign official” challenge. Thereafter, the defendants argued that the FCPA statute was “vague as applied,” as there was no way for the individual defendants to have done anything more to determine if a state-owned entity was an “instrumentality.” The defendants argued that there was no rhyme or reason to the government’s determination of whether a state-owned entity was an “instrumentality,” and, as such, the statute was vague. Finally, the defendants argued that the rule of lenity mandated that the Court dismiss the indictment, as the statute was unconstitutionally ambiguous and that, if it was a tie between the government’s position and the defendants’ position, that the tie should go to the defendants.
The government responded first by noting that the defendants’ ignored the standards the Court had to apply when deciding a motion to dismiss the indictment, as the issues presented in the motion raised factual issues that had to be resolved by a jury. Citing Hagner v. United States, 285 U.S. 427 (1932), the government argued that because there were factual issues outstanding related to whether the state-owned entities were “instrumentalities,” the Court could not grant the motion to dismiss. The government also argued that the statute was not void for vagueness, as the statute’s mens rea or scienter requirement served to defeat the defendants’ claim that they did not know what they were doing was wrong. In particular, however, the government noted that the statute did not require a specific intent, but instead the government need only prove that the defendants knew that what they were doing was wrong.
District Judge Selna permitted the parties to argue their respective positions, interjecting on few occasions. During the defendants’ arguments that the definition of “instrumentality” in the Foreign Sovereign Immunities Act (FSIA) could not be used as a reference point, or definition, for “instrumentality” in the FCPA statute, District Judge Selna asked whether the Court could infer whether Congress intended for the term “instrumentality” to have the same definition in the FCPA as the FSIA. District Judge Selna also inquired whether a finding that a state-owned entity was an “instrumentality” was self-evident, as the nature of the entity would be before the jury.
Ultimately, after hearing all arguments on defendants’ motion to dismiss, District Judge Selna took the motion under submission and reserved a final ruling on the motion for a later date.
Friday, May 6, 2011
Recent DOJ Statements At Issue In Carson "Foreign Official" Challenge
On Tuesday, Nathaniel Edmonds (Assistant Chief, DOJ Fraud Section who is specifically involved in the Carson "foreign official" challenge) participated in a webcast sponsored by the Conference Board titled "Enforcement of The Foreign Corrupt Practices Act: A Dialogue with Regulators" (see here).
According to a May 4th article authored by Christopher Matthews and published on the Just Anti-Corruption page of the website Main Justice, during the webcast Edmonds "warned defendants facing charges under the foreign bribery law against contesting that definition."
The article states as follows.
[“It’s not necessarily the wisest move for a company,” Assistant Chief Nathaniel Edmonds said Tuesday during a webcast on the FCPA sponsored by The Conference Board. Edmonds reiterated the Justice Department’s belief that employees of state-owned or controlled companies can be considered foreign officials under the FCPA, which prohibits bribes to foreign officials to obtain or retain business. “Quibbling over the percentage ownership or control of a company is not going to be particularly helpful as a defense,” Edmonds said.]
Yesterday, in a supplement to its reply brief (here) the Carson defendants brought the article to the attention of the court and stated as follows.
"Defendants respectfully submit that Mr. Edmonds’ comments supplement at
least two important points made in Defendants’ Motion and Reply. First, there is a reason the Government’s maximalist position on the definition of “foreign official” has avoided serious judicial scrutiny for so long, and the reason is that individuals and companies are reluctant to challenge the Government’s interpretation for fear of the consequences. Second, the Government does not have a definition of “instrumentality” that can withstand judicial scrutiny because, among other things, it is unable to say what would make one state-owned enterprise, but not another, an “instrumentality” under the FCPA."
According to a May 4th article authored by Christopher Matthews and published on the Just Anti-Corruption page of the website Main Justice, during the webcast Edmonds "warned defendants facing charges under the foreign bribery law against contesting that definition."
The article states as follows.
[“It’s not necessarily the wisest move for a company,” Assistant Chief Nathaniel Edmonds said Tuesday during a webcast on the FCPA sponsored by The Conference Board. Edmonds reiterated the Justice Department’s belief that employees of state-owned or controlled companies can be considered foreign officials under the FCPA, which prohibits bribes to foreign officials to obtain or retain business. “Quibbling over the percentage ownership or control of a company is not going to be particularly helpful as a defense,” Edmonds said.]
Yesterday, in a supplement to its reply brief (here) the Carson defendants brought the article to the attention of the court and stated as follows.
"Defendants respectfully submit that Mr. Edmonds’ comments supplement at
least two important points made in Defendants’ Motion and Reply. First, there is a reason the Government’s maximalist position on the definition of “foreign official” has avoided serious judicial scrutiny for so long, and the reason is that individuals and companies are reluctant to challenge the Government’s interpretation for fear of the consequences. Second, the Government does not have a definition of “instrumentality” that can withstand judicial scrutiny because, among other things, it is unable to say what would make one state-owned enterprise, but not another, an “instrumentality” under the FCPA."
Tuesday, May 3, 2011
Carson "Foreign Official" Challenge Fully Briefed
Yesterday various defendants in the U.S. v. Carson case pending in the Central District of California filed a reply brief (see here).
The brief begins as follows.
"In 1977, Congress could have enacted a general anti-bribery statute that made it a crime to pay a commercial bribe to any foreign national, but it did not. Rather, the FCPA criminalizes improper payments only to a “foreign official.” Thus, making an improper payment to a “foreign official” violates the FCPA; making that same payment to someone who is not a “foreign official” does not. This is undisputed."
"The Government argues that “[s]tate-owned business enterprises [‘SOEs’] may, in appropriate circumstances, be considered instrumentalities of a foreign government and their officers and employees to be foreign officials.” But Congress (i) knew about SOEs when it enacted the FCPA, (ii) knew that some of the questionable payments in the pre-FCPA era may have been made to employees of SOEs, and (iii) knew how to include SOEs in the definition of “foreign official” if it had wanted to do so. Clearly, Congress did not do so, and contrary to the Government’s arguments, there is no evidence that Congress intended SOEs to be covered by this criminal statute, or intended the word “instrumentality” to encompass broadly anything through which a foreign government achieves an “end or purpose.” In fact, the plain language of the statute and its history illustrate that the FCPA was aimed at preventing improper payments to traditional government officials. If Congress had wanted SOEs to be included in the definition of “instrumentality,” it would have expressly said so – just as it did in 1976 when it enacted the Foreign Sovereign Immunities Act (“FSIA”)."
"Having no statutory authority for its sweeping position, the Government is thus unable to define the “appropriate circumstances” when an SOE allegedly falls within the FCPA. The Government states only that it is a “fact-based determination.” But facts in isolation are irrelevant unless analyzed in the context of a legal framework. And for over two hundred years it has been “emphatically the province and duty of the judicial department” – not the jury – “to say what the law is.” Marbury v Madison, 5 U.S. (1 Cranch) 137 (1803). Thus, while a jury may decide disputed issues of fact, this Court must first decide the law."
"Defendants’ Motion squarely challenges the Government’s unsupported legal
interpretation of the FCPA by arguing that the term “instrumentality” simply does not include SOEs, and thus employees of SOEs are not, as a matter of law, “foreign officials.” The Government labels Defendants’ position as extreme, insisting that it “is not asking for a legal conclusion that all SOEs are instrumentalities,” only for a ruling that “the term instrumentality . . . can include SOEs.” But it is the Government’s position that is unreasonable, because the Government cannot articulate any principled test – and there is no test, other than one invented from whole cloth – for what would make one SOE, but not another, a government “instrumentality” under the FCPA. Accordingly, the Government’s concession, that some SOEs fall within and some outside the statute, coupled with the complete lack of any meaningful or discernable standards for deciding which is which, undermines the Government’s position and requires that it be rejected because it would render the FCPA unconstitutionally vague as applied."
"Accordingly, the Court should hold that employees of SOEs are not “foreign
officials” under the FCPA and should dismiss Counts One through Ten of the
Indictment. Contrary to the Government’s overblown rhetoric, the sky will not fall upon such a ruling; rather, the issue will be returned to its proper forum: Congress. See Skilling v. United States, 561 U.S. ___, 130 S. Ct. 2896, 2933 (2010) (“If Congress desires to go further . . . it must speak more clearly than it has.”)."
This previous post links to the Defendants' motion and my declaration filed in support. This previous post links to the DOJ's opposition brief as well as supporting declarations from the State Department and the FBI.
The Carson defendants also moved (see here) to strike the State Department declaration or in the alternative for a court order requiring the State Department employee to appear for questioning at next week's hearing). As noted in this prior post, the same State Department declaration was ordered stricken in the Lindsey "foreign official" challenge and is also being challenged in the O'Shea "foreign official" challenge - see here.
*****
In a related development, last week the DOJ announced (here) that "Flavio Ricotti, a former executive of [Control Components, Inc. - the same employer as the above referenced defendants challenging the DOJ's "foreign official" interpretation] has pleaded guilty for his participation in a conspiracy to secure contracts by paying bribes to officials of foreign state-owned companies as well as officers and employees of foreign and domestic private companies." See here for the plea agreement.
As noted in the DOJ release, "Ricotti pleaded guilty [...] to a one-count superseding information [see here] charging him with conspiring to make corrupt payments to foreign government officials, and officers and employees of private companies in several countries, including Saudi Arabia and Qatar, in violation of the Foreign Corrupt Practices Act (FCPA) and the Travel Act."
The DOJ release further states as follows. "In connection with his guilty plea, Ricotti admitted that he conspired with other CCI employees to offer a payment to an official of Saudi Aramco, a Saudi Arabian state-owned oil company, in connection with attempting to obtain a valve contract for CCI in 2003. Ricotti also admitted to conspiring with other CCI employees to make a payment to an employee of a private company so that the employee would assist in awarding to CCI a valve contract in Qatar."
As further noted in the DOJ release:
"In related cases, two defendants previously pleaded guilty to conspiring to bribe officers and employees of foreign state-owned companies on behalf of CCI. On Jan. 8, 2009, Mario Covino, the former director of worldwide factory sales for the valve company, pleaded guilty [see here] to one count of conspiracy to violate the FCPA and admitted to causing the payment of approximately $1 million in bribes to officers and employees of several foreign state-owned companies. On Feb. 3, 2009, Richard Morlok, the former finance director for the valve company, pleaded guilty [see here] to one count of conspiracy to violate the FCPA and admitted to causing the payment of approximately $628,000 in bribes to officers and employees of several foreign state-owned companies. Covino and Morlok are scheduled to be sentenced in February 2012."
See here for July 2009 enforcement action against Control Components, Inc.
The brief begins as follows.
"In 1977, Congress could have enacted a general anti-bribery statute that made it a crime to pay a commercial bribe to any foreign national, but it did not. Rather, the FCPA criminalizes improper payments only to a “foreign official.” Thus, making an improper payment to a “foreign official” violates the FCPA; making that same payment to someone who is not a “foreign official” does not. This is undisputed."
"The Government argues that “[s]tate-owned business enterprises [‘SOEs’] may, in appropriate circumstances, be considered instrumentalities of a foreign government and their officers and employees to be foreign officials.” But Congress (i) knew about SOEs when it enacted the FCPA, (ii) knew that some of the questionable payments in the pre-FCPA era may have been made to employees of SOEs, and (iii) knew how to include SOEs in the definition of “foreign official” if it had wanted to do so. Clearly, Congress did not do so, and contrary to the Government’s arguments, there is no evidence that Congress intended SOEs to be covered by this criminal statute, or intended the word “instrumentality” to encompass broadly anything through which a foreign government achieves an “end or purpose.” In fact, the plain language of the statute and its history illustrate that the FCPA was aimed at preventing improper payments to traditional government officials. If Congress had wanted SOEs to be included in the definition of “instrumentality,” it would have expressly said so – just as it did in 1976 when it enacted the Foreign Sovereign Immunities Act (“FSIA”)."
"Having no statutory authority for its sweeping position, the Government is thus unable to define the “appropriate circumstances” when an SOE allegedly falls within the FCPA. The Government states only that it is a “fact-based determination.” But facts in isolation are irrelevant unless analyzed in the context of a legal framework. And for over two hundred years it has been “emphatically the province and duty of the judicial department” – not the jury – “to say what the law is.” Marbury v Madison, 5 U.S. (1 Cranch) 137 (1803). Thus, while a jury may decide disputed issues of fact, this Court must first decide the law."
"Defendants’ Motion squarely challenges the Government’s unsupported legal
interpretation of the FCPA by arguing that the term “instrumentality” simply does not include SOEs, and thus employees of SOEs are not, as a matter of law, “foreign officials.” The Government labels Defendants’ position as extreme, insisting that it “is not asking for a legal conclusion that all SOEs are instrumentalities,” only for a ruling that “the term instrumentality . . . can include SOEs.” But it is the Government’s position that is unreasonable, because the Government cannot articulate any principled test – and there is no test, other than one invented from whole cloth – for what would make one SOE, but not another, a government “instrumentality” under the FCPA. Accordingly, the Government’s concession, that some SOEs fall within and some outside the statute, coupled with the complete lack of any meaningful or discernable standards for deciding which is which, undermines the Government’s position and requires that it be rejected because it would render the FCPA unconstitutionally vague as applied."
"Accordingly, the Court should hold that employees of SOEs are not “foreign
officials” under the FCPA and should dismiss Counts One through Ten of the
Indictment. Contrary to the Government’s overblown rhetoric, the sky will not fall upon such a ruling; rather, the issue will be returned to its proper forum: Congress. See Skilling v. United States, 561 U.S. ___, 130 S. Ct. 2896, 2933 (2010) (“If Congress desires to go further . . . it must speak more clearly than it has.”)."
This previous post links to the Defendants' motion and my declaration filed in support. This previous post links to the DOJ's opposition brief as well as supporting declarations from the State Department and the FBI.
The Carson defendants also moved (see here) to strike the State Department declaration or in the alternative for a court order requiring the State Department employee to appear for questioning at next week's hearing). As noted in this prior post, the same State Department declaration was ordered stricken in the Lindsey "foreign official" challenge and is also being challenged in the O'Shea "foreign official" challenge - see here.
*****
In a related development, last week the DOJ announced (here) that "Flavio Ricotti, a former executive of [Control Components, Inc. - the same employer as the above referenced defendants challenging the DOJ's "foreign official" interpretation] has pleaded guilty for his participation in a conspiracy to secure contracts by paying bribes to officials of foreign state-owned companies as well as officers and employees of foreign and domestic private companies." See here for the plea agreement.
As noted in the DOJ release, "Ricotti pleaded guilty [...] to a one-count superseding information [see here] charging him with conspiring to make corrupt payments to foreign government officials, and officers and employees of private companies in several countries, including Saudi Arabia and Qatar, in violation of the Foreign Corrupt Practices Act (FCPA) and the Travel Act."
The DOJ release further states as follows. "In connection with his guilty plea, Ricotti admitted that he conspired with other CCI employees to offer a payment to an official of Saudi Aramco, a Saudi Arabian state-owned oil company, in connection with attempting to obtain a valve contract for CCI in 2003. Ricotti also admitted to conspiring with other CCI employees to make a payment to an employee of a private company so that the employee would assist in awarding to CCI a valve contract in Qatar."
As further noted in the DOJ release:
"In related cases, two defendants previously pleaded guilty to conspiring to bribe officers and employees of foreign state-owned companies on behalf of CCI. On Jan. 8, 2009, Mario Covino, the former director of worldwide factory sales for the valve company, pleaded guilty [see here] to one count of conspiracy to violate the FCPA and admitted to causing the payment of approximately $1 million in bribes to officers and employees of several foreign state-owned companies. On Feb. 3, 2009, Richard Morlok, the former finance director for the valve company, pleaded guilty [see here] to one count of conspiracy to violate the FCPA and admitted to causing the payment of approximately $628,000 in bribes to officers and employees of several foreign state-owned companies. Covino and Morlok are scheduled to be sentenced in February 2012."
See here for July 2009 enforcement action against Control Components, Inc.
Thursday, April 21, 2011
Judge Matz Issues Narrow "Foreign Official" Decision / Calls DOJ Post-Hearing Request "Astounding"
As noted in an April 1st post (see here), United States District Judge Howard Matz (C.D. of California) issued an oral ruling denying the Lindsey defendants "foreign official" challenge. See here for a transcript of the hearing.
As noted in the hearing transcript, Judge Matz stated that the "foreign official" challenge "warrants and will receive a very considered written ruling."
Yesterday, Judge Matz issued his written decision. See here.
According to Judge Matz, "the question presented by the motion is whether an officer or employee of a state-owned corporation can be a 'foreign official' for purposes of FCPA liability." [In a footnote, Judge Matz noted, "[a]s discussed in the Addendum to this order, the Government never directly challenged that assumption until more than two weeks after the Court had issued its oral ruling denying Defendants' motion to dismiss and trial had commenced." (emphasis added)].
Judge Matz's holding is as follows. "The Court denies the motion to dismiss, because a state-owned corporation having the attributes of CFE may be an 'instrumentality' of a foreign government within the meaning of the FCPA, and officers of such a state-owned corporation, as Messrs. Nestor Moreno and Arturo Hernandez are alleged to be, may therefore be 'foreign officials' within the meaning of the FCPA."
As to the meaning of "instrumentality," Judge Matz stated as follows. "Instrumentality is a noun having an inherently broad scope, but it is unnecessary for this Court to choose a particularly elastic dictionary definition of that word. Instead, the Court will adopt the very definition that Defendants themselves proffer." Judge Matz then analyzed those definitions.
As to the FCPA's legislative history, Judge Matz stated as follows. "It is unnecessary to base this ruling upon the legislative history of the FCPA, given that the meaning of 'instrumentality' under Defendants' definition of the term clearly encompasses CFE. Nevertheless, because legislative history was so central to Defendants' motion, the Court will summarize the parties' contentions."
After providing such a summary, Judge Matz stated in dicta as follows.
"The Court finds that the legislative history of the FCPA is inconclusive. Although it does not demonstrate that Congress intended to include all state-owned corporations within the ambit of the FCPA, neither does it provide support for Defendants' insistence that Congress intended to exclude all such corporations from the ambit of the FCPA." (emphasis in original).
As discussed above, Judge Matz's decision contains an Addendum. It begins as follows.
"After the jury trial had been underway for more than two weeks, and just before this order was to be filed, the Government asked the Court to take judicial notice of what the Government claims is this fact. 'CFE was created by Mexico as a decentralized public entity with its own legal status and assets.' In a footnote the Government added, '... [U]nder Mexican law, CFE is a decentralized public entity, not a corporation.' This request is astounding."
Judge Matz then stated, among other things, that:
"throughout the hundreds of pages of argument and exhibits that were filed as part of motion practice, the Government never stated that CFE is not a corporation;"
"nor did it assert that view at the hearing on this motion;"
"in a lengthy footnote in its opposition papers the Government stressed that in more than a dozen FCPA prosecutions, 'guilty pleas were accepted by U.S. District Courts, involved bribery of officials of state-owned companies'" (emphasis added)
"the Government cited two cases in which state-owned companies were found to fall within the scope of the FCPA" and the Government "cited and attached jury instructions in yet two additional cases, to the effect that 'the definition of government instrumentality includes companies owned or controlled by the state;" (emphasis added)
"still later, the Government continued in this vein, purporting to refute the Defendants' legislative history analysis by stressing that the author of the declaration that the Defendants' cited 'is unable to find a single reference ... that Congress intended to exclude state-owned companies from the definition of instrumentality ...'"; (emphasis added)
"the Government concluded , "from the FCPA's inception, state-owned and state-controlled companies were within Congress's intended definition of instrumentalities of a foreign government.'" (emphasis added).
Judge Matz then ends the Addendum as follows.
"There is nothing in the Government's peculiar request for judicial notice which warrants a change in the foregoing ruling."
As noted in the hearing transcript, Judge Matz stated that the "foreign official" challenge "warrants and will receive a very considered written ruling."
Yesterday, Judge Matz issued his written decision. See here.
According to Judge Matz, "the question presented by the motion is whether an officer or employee of a state-owned corporation can be a 'foreign official' for purposes of FCPA liability." [In a footnote, Judge Matz noted, "[a]s discussed in the Addendum to this order, the Government never directly challenged that assumption until more than two weeks after the Court had issued its oral ruling denying Defendants' motion to dismiss and trial had commenced." (emphasis added)].
Judge Matz's holding is as follows. "The Court denies the motion to dismiss, because a state-owned corporation having the attributes of CFE may be an 'instrumentality' of a foreign government within the meaning of the FCPA, and officers of such a state-owned corporation, as Messrs. Nestor Moreno and Arturo Hernandez are alleged to be, may therefore be 'foreign officials' within the meaning of the FCPA."
As to the meaning of "instrumentality," Judge Matz stated as follows. "Instrumentality is a noun having an inherently broad scope, but it is unnecessary for this Court to choose a particularly elastic dictionary definition of that word. Instead, the Court will adopt the very definition that Defendants themselves proffer." Judge Matz then analyzed those definitions.
As to the FCPA's legislative history, Judge Matz stated as follows. "It is unnecessary to base this ruling upon the legislative history of the FCPA, given that the meaning of 'instrumentality' under Defendants' definition of the term clearly encompasses CFE. Nevertheless, because legislative history was so central to Defendants' motion, the Court will summarize the parties' contentions."
After providing such a summary, Judge Matz stated in dicta as follows.
"The Court finds that the legislative history of the FCPA is inconclusive. Although it does not demonstrate that Congress intended to include all state-owned corporations within the ambit of the FCPA, neither does it provide support for Defendants' insistence that Congress intended to exclude all such corporations from the ambit of the FCPA." (emphasis in original).
As discussed above, Judge Matz's decision contains an Addendum. It begins as follows.
"After the jury trial had been underway for more than two weeks, and just before this order was to be filed, the Government asked the Court to take judicial notice of what the Government claims is this fact. 'CFE was created by Mexico as a decentralized public entity with its own legal status and assets.' In a footnote the Government added, '... [U]nder Mexican law, CFE is a decentralized public entity, not a corporation.' This request is astounding."
Judge Matz then stated, among other things, that:
"throughout the hundreds of pages of argument and exhibits that were filed as part of motion practice, the Government never stated that CFE is not a corporation;"
"nor did it assert that view at the hearing on this motion;"
"in a lengthy footnote in its opposition papers the Government stressed that in more than a dozen FCPA prosecutions, 'guilty pleas were accepted by U.S. District Courts, involved bribery of officials of state-owned companies'" (emphasis added)
"the Government cited two cases in which state-owned companies were found to fall within the scope of the FCPA" and the Government "cited and attached jury instructions in yet two additional cases, to the effect that 'the definition of government instrumentality includes companies owned or controlled by the state;" (emphasis added)
"still later, the Government continued in this vein, purporting to refute the Defendants' legislative history analysis by stressing that the author of the declaration that the Defendants' cited 'is unable to find a single reference ... that Congress intended to exclude state-owned companies from the definition of instrumentality ...'"; (emphasis added)
"the Government concluded , "from the FCPA's inception, state-owned and state-controlled companies were within Congress's intended definition of instrumentalities of a foreign government.'" (emphasis added).
Judge Matz then ends the Addendum as follows.
"There is nothing in the Government's peculiar request for judicial notice which warrants a change in the foregoing ruling."
O'Shea "Foreign Official" Challenge Fully Briefed
Earlier this week, lawyers for John Joseph O'Shea filed a replly brief (here) in the "foreign official" challenge pending in the Southern District of Texas. The "foreign officials" at issue in the O'Shea matter are alleged to be officials of Comision Federal de Electricidad ("CFE"), a Mexican utility, the same entity at issue in the Lindsey matter currently in trial in the Central District of California. See here for the prior post.
O'Shea's argument begins as follows.
"The Government Relies on 'Prosecutorial Common Law' and Rulings from Cases That Did Not Consider or Inadequately Considered the Meaning of Foreign Official."
The reply brief then states as follows. "As long as FCPA defendants - both individuals and corporations - enter into non-prosecution agreements, deferred prosecution agreements, and plea agreements, the government will continue to build its arsenal of 'prosecutorial common law' to supports its aggressive and slanted interpretation of the FCPA. Yet court acceptance of plea agreements does not convert the government's pronunciations on the law into sources of legal authority. Indeed, the government's strategy of creating its own would-be common law threatens to strip the federal courts of their judicial power to interpret the FCPA."
See here for the prior post on O'Shea's motion to dismiss.
See here for the prior post on the DOJ's response brief.
Along with the reply brief, O'Shea's lawyers also filed (here) a motion to strike the Declaration of Clifton Johnson ((Assistant Legal Adviser for Law Enforcement and Intelligence in the Legal Adviser's Office of the United States Department of State). Johnson's declaration was ordered stricken in the Lindsey challenge (see here) and was also filed earlier this week in the Carson "foreign official" challenge pending in the Central District of California. (See here).
O'Shea's argument begins as follows.
"The Government Relies on 'Prosecutorial Common Law' and Rulings from Cases That Did Not Consider or Inadequately Considered the Meaning of Foreign Official."
The reply brief then states as follows. "As long as FCPA defendants - both individuals and corporations - enter into non-prosecution agreements, deferred prosecution agreements, and plea agreements, the government will continue to build its arsenal of 'prosecutorial common law' to supports its aggressive and slanted interpretation of the FCPA. Yet court acceptance of plea agreements does not convert the government's pronunciations on the law into sources of legal authority. Indeed, the government's strategy of creating its own would-be common law threatens to strip the federal courts of their judicial power to interpret the FCPA."
See here for the prior post on O'Shea's motion to dismiss.
See here for the prior post on the DOJ's response brief.
Along with the reply brief, O'Shea's lawyers also filed (here) a motion to strike the Declaration of Clifton Johnson ((Assistant Legal Adviser for Law Enforcement and Intelligence in the Legal Adviser's Office of the United States Department of State). Johnson's declaration was ordered stricken in the Lindsey challenge (see here) and was also filed earlier this week in the Carson "foreign official" challenge pending in the Central District of California. (See here).
Tuesday, April 19, 2011
DOJ Files Opposition Brief in Carson "Foreign Official" Challenge
On February 21st, various defendants in the U.S. v. Carson case pending in the Central District of California filed a historic challenge to the DOJ's interpretation that employees of alleged state-owned or state-controlled enterprises are “foreign officials” under the FCPA. (See here for the prior post).
Yesterday, the DOJ filed its opposition brief (see here).
The DOJ brief is supported by the same declaration from Clifton Johnson (Assistant Legal Adviser for Law Enforcement and Intelligence in the Legal Adviser's Office of the United States Department of State) ordered stricken in the Lindsey "foreign official" challenge (see here and here) and also filed in the O'Shea "foreign official" challenge (see here).
The DOJ brief is also supported by a declaration from FBI Special Agent Brian Smith (here) as to "some facts related to certain of the entities involved" in the case and "information pertaining to state-owned enterprises in China" and "certain portions of legislative history related" to the FCPA.
Also yesterday, Nathaniel Edmonds (Assistant Chief, DOJ Fraud Section) filed a notice of appearance in the case.
Yesterday, the DOJ filed its opposition brief (see here).
The DOJ brief is supported by the same declaration from Clifton Johnson (Assistant Legal Adviser for Law Enforcement and Intelligence in the Legal Adviser's Office of the United States Department of State) ordered stricken in the Lindsey "foreign official" challenge (see here and here) and also filed in the O'Shea "foreign official" challenge (see here).
The DOJ brief is also supported by a declaration from FBI Special Agent Brian Smith (here) as to "some facts related to certain of the entities involved" in the case and "information pertaining to state-owned enterprises in China" and "certain portions of legislative history related" to the FCPA.
Also yesterday, Nathaniel Edmonds (Assistant Chief, DOJ Fraud Section) filed a notice of appearance in the case.
Friday, April 1, 2011
Lindsey "Foreign Official" Motion Denied
Mike McCollum (Foley & Lardner - here), who was present for today's hearing, and Jaime Guerrero (Foley & Lardner - here) provide this guest post.
*****
This afternoon, United States District Judge Howard Matz issued an oral ruling in the Lindsey case that is scheduled to begin trial on April 5 in the Central District of California. The Court denied defendants’ motion to dismiss the indictment on the “foreign official” issue. The issue presented was whether the officials of Mexico’s state-owned utility company, CFE, were “foreign officials” under the FCPA. Giving his ruling orally from the bench, and emphasizing that his precise reasoning will be spelled out in a written ruling to follow, District Judge Matz held that they were foreign officials, giving some insight into his thinking.
District Judge Matz noted several undisputed facts, including that CFE supplies electricity to all of Mexico except for Mexico City, that the Mexican Constitution provides that the supply of electricity in Mexico is solely a government function, that Mexican statutory law defines CFE as a “decentralized public entity with legal personality and its own patrimony,” that CFE’s Governing Board is composed of Mexican government officials and its Director General is appointed by the President of Mexico, and that CFE’s English language website describes it as an agency of the Federal Government. District Judge Matz further confirmed that it was the defendants’ position, as stated in their briefs, that the issue presented was one of “pristine” undisputed facts and issues of law, and thus no further facts that might be introduced at trial could bear on the issue.
District Judge Matz then presented to counsel for the moving defendants a two-page written hypothetical. Because he only distributed the hypothetical to the attorneys, we can only go from the summary described in open court, which was essentially this: Exxon and Occidental bid for a large oil contract from Pemex, Mexico’s state-owned oil company. It is a public bid, and Occidental offers to pay more than Exxon. At the publicly televised contract award ceremony, however, Exxon hands a $10 million check to Pemex, which thanks Exxon publicly, and then Pemex awards the contract to Exxon instead. Question put to the defense: Is it the case that Congress, in enacting the FCPA, would have said that the FCPA would not have applied to these circumstances? Counsel for the moving defendants argued that what was important was not what Congress would have wanted to say, but what they did say, and Congress did not say that the statute should apply to state-owned-enterprises. In an era (1970s) when states owned large sectors of industry around the world, Congress chose not to include state-owned-enterprises within the reach of the FCPA.
District Judge Matz responded, in essence, that what was most convincing to him, in combination with the undisputed facts regarding CFE noted above, was the definition of the word “instrumentality.” He noted the defendants’ Webster Dictionary definitions (“serving as a means or agency: implemental” and “of, relating to, or done with an instrument or tool”) and American Heritage Dictionary definition (“[a] subsidiary branch, as of a government, by means of which functions or policies are carried out”). Based on this definition of “instrumentality” and on the undisputed facts regarding CFE, District Judge Matz noted that it was unnecessary to delve into the legislative history because it could be determined as a matter of statutory construction that the officials of CFE were “foreign officials.”
Opening statements are set for Tuesday morning, and the trial is expected to go until the end of April.
*****
For additional coverage see here from the FCPA Blog.
For briefing on the "foreign official" issue, see prior posts here, here, and here.
*****
This afternoon, United States District Judge Howard Matz issued an oral ruling in the Lindsey case that is scheduled to begin trial on April 5 in the Central District of California. The Court denied defendants’ motion to dismiss the indictment on the “foreign official” issue. The issue presented was whether the officials of Mexico’s state-owned utility company, CFE, were “foreign officials” under the FCPA. Giving his ruling orally from the bench, and emphasizing that his precise reasoning will be spelled out in a written ruling to follow, District Judge Matz held that they were foreign officials, giving some insight into his thinking.
District Judge Matz noted several undisputed facts, including that CFE supplies electricity to all of Mexico except for Mexico City, that the Mexican Constitution provides that the supply of electricity in Mexico is solely a government function, that Mexican statutory law defines CFE as a “decentralized public entity with legal personality and its own patrimony,” that CFE’s Governing Board is composed of Mexican government officials and its Director General is appointed by the President of Mexico, and that CFE’s English language website describes it as an agency of the Federal Government. District Judge Matz further confirmed that it was the defendants’ position, as stated in their briefs, that the issue presented was one of “pristine” undisputed facts and issues of law, and thus no further facts that might be introduced at trial could bear on the issue.
District Judge Matz then presented to counsel for the moving defendants a two-page written hypothetical. Because he only distributed the hypothetical to the attorneys, we can only go from the summary described in open court, which was essentially this: Exxon and Occidental bid for a large oil contract from Pemex, Mexico’s state-owned oil company. It is a public bid, and Occidental offers to pay more than Exxon. At the publicly televised contract award ceremony, however, Exxon hands a $10 million check to Pemex, which thanks Exxon publicly, and then Pemex awards the contract to Exxon instead. Question put to the defense: Is it the case that Congress, in enacting the FCPA, would have said that the FCPA would not have applied to these circumstances? Counsel for the moving defendants argued that what was important was not what Congress would have wanted to say, but what they did say, and Congress did not say that the statute should apply to state-owned-enterprises. In an era (1970s) when states owned large sectors of industry around the world, Congress chose not to include state-owned-enterprises within the reach of the FCPA.
District Judge Matz responded, in essence, that what was most convincing to him, in combination with the undisputed facts regarding CFE noted above, was the definition of the word “instrumentality.” He noted the defendants’ Webster Dictionary definitions (“serving as a means or agency: implemental” and “of, relating to, or done with an instrument or tool”) and American Heritage Dictionary definition (“[a] subsidiary branch, as of a government, by means of which functions or policies are carried out”). Based on this definition of “instrumentality” and on the undisputed facts regarding CFE, District Judge Matz noted that it was unnecessary to delve into the legislative history because it could be determined as a matter of statutory construction that the officials of CFE were “foreign officials.”
Opening statements are set for Tuesday morning, and the trial is expected to go until the end of April.
*****
For additional coverage see here from the FCPA Blog.
For briefing on the "foreign official" issue, see prior posts here, here, and here.
Tuesday, March 29, 2011
DOJ Files "Foreign Official" Response Brief In O'Shea Matter
With attention focused on the "foreign official" challenge in the Lindsey matter pending in the C.D. of California (a ruling may soon occur), the DOJ yesterday filed (here) its "foreign official" response brief in the O'Shea matter pending in the S.D. of Texas. See here for the prior post.
The DOJ's response is substantively similar to its response in the Lindsey matter. See here for the prior post.
In its O'Shea response, the DOJ attaches the same declaration of Clifton Johnson (Assistant Legal Adviser for Law Enforcement and Intelligence in the Legal Adviser's Office of the United States Department of State) as it filed in the Lindsey matter. See here for the prior post. As noted in this prior post, the judge in the Lindsey ordered the declaration be stricken.
The DOJ's response is substantively similar to its response in the Lindsey matter. See here for the prior post.
In its O'Shea response, the DOJ attaches the same declaration of Clifton Johnson (Assistant Legal Adviser for Law Enforcement and Intelligence in the Legal Adviser's Office of the United States Department of State) as it filed in the Lindsey matter. See here for the prior post. As noted in this prior post, the judge in the Lindsey ordered the declaration be stricken.
Wednesday, March 23, 2011
Lindsey Defendants Move to Strike State Department "Foreign Official" Declaration *UPDATE* Judge Strikes State Department Declaration
Monday's post (here) detailed the recent declaration by Clifton Johnson, Assistant Legal Adviser for Law Enforcement and Intelligence in the Legal Adviser's Office of the United States Department of State in the Lindsey "foreign official" challenge pending in the Central District of California.
The Lindsey defendants have moved (here) to strike the State Department declaration. Among other arguments made, the Lindsey defendants state as follows.
"The opinion of one employee of the Department of State, or even of the Department of State as a whole, on the terms of the Convention and what the treaty required of the United States, as well as the meaning of the FCPA, a United States criminal statute, has no bearing on the matter before the Court. In any event, it is the job of the federal courts, not the executive branch, to be the final arbiter of what the FCPA actually provides. See generally Marbury v. Madison, 1 Cranch 137, 177 (1803) (“It is emphatically the province and duty of the judicial department to say what the law is.”)."
"On the other hand, the foreign policy implications of a particular interpretation, and how to deal with them, are the business of Congress and the President to address. Mr. Johnson’s suggestion to this Court to decide foreign policy is inappropriate. Courts concern themselves with the interpretation of the law as written. Congress is perfectly capable of amending the statute if it decides it is necessary to do so in light of a court’s decision. See generally McNally v. United States, 483 U.S. 350, 360 (1987) superseded by statute, Anti-Drug Abuse Act of 1988, Pub. L. No. 100-690, 102 Stat. 4181 (“If Congress desires to go further, it must speak more clearly.”)."
Alternatively, the Lindsey defendants argue that if the Court is inclinded to consider the State Department declaration, that it should order Mr. Johnson to appear at the March 24th motion hearing. As noted in an exhibit to the motion to strike, the DOJ has stated that it "will not voluntarily produce Mr. Johnson as a witness at that hearing."
*UPDATED*
In an order yesterday, presiding judge Howard Matz ordered (here) the State Department declaration be stricken.
For additional coverage see here.
The Lindsey defendants have moved (here) to strike the State Department declaration. Among other arguments made, the Lindsey defendants state as follows.
"The opinion of one employee of the Department of State, or even of the Department of State as a whole, on the terms of the Convention and what the treaty required of the United States, as well as the meaning of the FCPA, a United States criminal statute, has no bearing on the matter before the Court. In any event, it is the job of the federal courts, not the executive branch, to be the final arbiter of what the FCPA actually provides. See generally Marbury v. Madison, 1 Cranch 137, 177 (1803) (“It is emphatically the province and duty of the judicial department to say what the law is.”)."
"On the other hand, the foreign policy implications of a particular interpretation, and how to deal with them, are the business of Congress and the President to address. Mr. Johnson’s suggestion to this Court to decide foreign policy is inappropriate. Courts concern themselves with the interpretation of the law as written. Congress is perfectly capable of amending the statute if it decides it is necessary to do so in light of a court’s decision. See generally McNally v. United States, 483 U.S. 350, 360 (1987) superseded by statute, Anti-Drug Abuse Act of 1988, Pub. L. No. 100-690, 102 Stat. 4181 (“If Congress desires to go further, it must speak more clearly.”)."
Alternatively, the Lindsey defendants argue that if the Court is inclinded to consider the State Department declaration, that it should order Mr. Johnson to appear at the March 24th motion hearing. As noted in an exhibit to the motion to strike, the DOJ has stated that it "will not voluntarily produce Mr. Johnson as a witness at that hearing."
*UPDATED*
In an order yesterday, presiding judge Howard Matz ordered (here) the State Department declaration be stricken.
For additional coverage see here.
Monday, March 21, 2011
State Department Declaration in Lindsey "Foreign Official" Challenge
In its opposition brief (here) in the Lindsey "foreign official" challenge, the DOJ states at footnote 5:
"If this Court were to interpret the FCPA in such a way that officials of state-owned and state-controlled enterprises could not be foreign officials, the United States would be out of compliance with its treaty obligations under the OECD Convention. The government has requested a declaration from the State Department confirming this assessment and explaining its implications for U.S. foreign policy. Given the short response period, the declaration could not be finalized, but the government will endeavor to secure the declaration before argument on this motion and will file it if and when it is received."
Last Friday, the DOJ filed a declaration by Clifton Johnson, Assistant Legal Adviser for Law Enforcement and Intelligence in the Legal Adviser's Office of the United States Department of State - see here.
*****
Readers may also be interested in reviewing the OECD Convention (here) including commentary 15; a previous post (here) on the OECD Convention and U.S. positions; and a previous post (here) on how another OECD signatory country views the term "foreign public official."
"If this Court were to interpret the FCPA in such a way that officials of state-owned and state-controlled enterprises could not be foreign officials, the United States would be out of compliance with its treaty obligations under the OECD Convention. The government has requested a declaration from the State Department confirming this assessment and explaining its implications for U.S. foreign policy. Given the short response period, the declaration could not be finalized, but the government will endeavor to secure the declaration before argument on this motion and will file it if and when it is received."
Last Friday, the DOJ filed a declaration by Clifton Johnson, Assistant Legal Adviser for Law Enforcement and Intelligence in the Legal Adviser's Office of the United States Department of State - see here.
*****
Readers may also be interested in reviewing the OECD Convention (here) including commentary 15; a previous post (here) on the OECD Convention and U.S. positions; and a previous post (here) on how another OECD signatory country views the term "foreign public official."
Friday, March 18, 2011
"Foreign Official" Issue Fully Briefed in Lindsey Matter
Yesterday, Lindsey Manufacturing Company, Keith Lindsey, and Steve Lee - defendants in an FCPA case pending in the Central District of California - filed a reply brief (here) to the DOJ's opposition to defendants' motion to dismiss challenging the DOJ's interpretation that employees of alleged state-owned or state-controlled enterprises are “foreign officials” under the FCPA.
See here for the prior post on the defendants' motion to dismiss.
See here for the prior post on the DOJ's opposition brief.
Other "foreign official" challenges pending (although not as far along in terms of briefing) include the Carson matter (also in the C.D. of California - see here) and the O'Shea matter (in the S.D. of Texas - see here).
See here for the prior post on the defendants' motion to dismiss.
See here for the prior post on the DOJ's opposition brief.
Other "foreign official" challenges pending (although not as far along in terms of briefing) include the Carson matter (also in the C.D. of California - see here) and the O'Shea matter (in the S.D. of Texas - see here).
Friday, March 11, 2011
DOJ Files "Foreign Official" Opposition Brief In Lindsey Matter
Yesterday, the DOJ filed its opposition brief (here) in the Lindsey matter pending in the C.D. of California.
As noted in this prior post, the defendants filed a motion to dismiss challenging the DOJ's interpretation that employees of alleged state-owned or state-controlled enterprises are “foreign officials” under the FCPA.
Other "foreign official" challenges pending include the Carson matter (also in the C.D. of California - see here) and the O'Shea matter (in the S.D. of Texas - see here).
As noted in this prior post, the defendants filed a motion to dismiss challenging the DOJ's interpretation that employees of alleged state-owned or state-controlled enterprises are “foreign officials” under the FCPA.
Other "foreign official" challenges pending include the Carson matter (also in the C.D. of California - see here) and the O'Shea matter (in the S.D. of Texas - see here).
Tuesday, March 8, 2011
Another "Foreign Official" Challenge
For the third consecutive Monday, an FCPA defendant has filed a motion to dismiss challenging the DOJ's interpretation that employees of alleged state-owned or state-controlled enterprises are “foreign officials” under the FCPA.
Yesterday in the S.D. of Texas, lawyers for John Jospeh O'Shea filed this motion.
In November 2009, O'Shea was charged in an eighteen count indictment (see here). See here for the DOJ release.
O'Shea is the former general manager of ABB Network Management. In September 2010 ABB Ltd. and certain of its affiliated entities resolved an FCPA enforcement action based in part on the conduct at issue in the O'Shea indictment. See here for the DOJ release and here for the prior post.
O'Shea's trial is scheduled to begin on May 3, 2011.
For the other recent "foreign official" challenges (both in the C.D. of California) see here and here.
Yesterday in the S.D. of Texas, lawyers for John Jospeh O'Shea filed this motion.
In November 2009, O'Shea was charged in an eighteen count indictment (see here). See here for the DOJ release.
O'Shea is the former general manager of ABB Network Management. In September 2010 ABB Ltd. and certain of its affiliated entities resolved an FCPA enforcement action based in part on the conduct at issue in the O'Shea indictment. See here for the DOJ release and here for the prior post.
O'Shea's trial is scheduled to begin on May 3, 2011.
For the other recent "foreign official" challenges (both in the C.D. of California) see here and here.
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